FEASIBILITY STUDY XXXX Manufacturing Project April, 2013
Prepared by XXX
For XXX LLC
INTRODUCTION The Gulf Cooperation Council (GCC) countries including Kuwait have witnessed significant economic growth during 2003-2007. During this period, GCC’s nominal GDP tripled in value, setting the basis for strong industrial growth going forward. Real GDP growth in the non-oil sector averaged 8.3%, a slightly faster pace than the overall real GDP growth. Keeping the above fact in mind, concept for the project of XXX production was born. The primary aim of setting up a XXX production capacity in Kuwait is to enable local production of XXX, which can act as a substitute for imports of XXX. It is expected that this production will help in meeting requirements of both the local and GCC markets and contribute indirectly to the growth of national economy along with generating employment opportunities and expansion of ancillary industries like transport, insurance, etc. The XXX project is part of the Kuwait government’s long-term plan of making the private sector more dynamic. To that end, the government is providing several incentives to support the private industrial sector. Some of these incentives include: •
Provision of loans by the Industrial Bank
•
Providing necessary lands for construction of projects at low prices
•
Providing basic facilities like Electricity and Water at low prices
•
Encouraging government departments to prefer national products, if they are of the desired quality
•
Exemption of industrial activities from taxes
A feasibility study for setting up a XXX production capacity has been initiated, which will be presented to the general board for industry to seek license to set up such industrial establishment. This study includes four sections: •
General statement about industrial establishment
•
Marketing study
•
Technical study
•
Economic study
1|Confidential
TOC Sr. No.
1 2 1-2 2-2 3-2
3
Topics
Page No.
General statement about industrial establishment Marketing study
4-5 6-9
Foreign trade statistics Estimation of available production power Estimation of sale prices
6 7-8 9
Technical study
10-23
1-3
Brief description of production operation
11-12
2-3 3-3 4-3 5-3 6-3 7-3
Standard specification of products Equipment of the project Necessary employment for the project Necessary raw material for the project General benefit Area of industrial plot and building construction cost
13 14-15 16-17 18 19 20-23
Economic study
24-34
1-4 2-4 3-4
Necessary investment for the project Annual production cost Financing of the project
25-26 27-29 30
4-4 5-4 6-4 7-4
Estimation of annual sale value Economic indicators Summary of the project economy Summary of economic indicators
31 32-33 34 34
4
2|Confidential
ENCLOSURES Sr. No 1-
234-
Topics Official documents of the company are as follows: • Memorandum of association of the company • Commercial register • Certificate of the chamber of commerce and industry • Civil card for director-general Foreign currency translation rate Price offer for equipment of the factory Price offer of raw material
3|Confidential
1- General statement about the establishment 1-1 1-2 1-3 1-4 1-5
Name of applicant Date of submission of the application Address Legal shape Partners • • • •
: : : : :
To be filled by Client To be filled by Client XXX Limited Liability company As mentioned in the enclosure no. 1 Enclosure no.(1) contains : Memorandum of association of the company Commercial register Certificate of the chamber of commerce and industry Civil card for director-general
1-6 Kind of production proposed: Sr. Arranged code No. 1 39252000 Total
Name of the product XXX
Unit
Quantity
Metric Tons (MT)
5,000 5,000
1-7 Total estimated investment for the project: Total investment Fixed assets Foundation expenses Working capital Total investment
Value in KD XXX XXX XXX XXX
1-8 Financing: Statement
Value in KD XXX 0 0 0 3,362,888 0
Paid capital Loan from the Industrial Bank Loan from commercial banks Credit facilities Total financing Annual interest on loan (3.5%) 1-9
Estimation of the Area of the Industrial plot:
4|Confidential
2,480 square meters
1-10
Manpower in the project
:
1-11
Time fixed for implementation of the project:
1-12
Technical assistant
32 employees and workers Two years
:
2- Marketing Study 2-1 Foreign trade statistics 2-1-1 Movement of imports: The following table shows volume of XXX imports into Kuwait during 2006: Country
Weight (MT) 216.5 41.6 258.1
Sweden Germany Total
Value (KD) 82,350 46,348 128,698
2-1-2 Movement of exports: The following table shows volume of XXX exports during 2006: Country
Weight (KG) NIL
Total
Value (KD) NIL
XXX was not exported from Kuwait in 2006. Note: Demand for XXX in the GCC region was about 8,300 metric tons and is expected to increase at a CAGR of 2% and reach 9,100 metric tons by 2012. Currently, the entire GCC region’s demand is met by imports as XXX is not being produced in the region. However, Chemanol in Saudi Arabia is setting up a 30,000-metric ton XXX plant in partnership with Perstorp, which will be completely operational by 2012. According to the client, this plant is being set up to meet the global demand, especially demand in the Eastern Europe and Asia-Pacific region. Hence, the 5,000-metric ton XXX plant can be set up in Kuwait to cater to XXX demand in the GCC region.
5|Confidential
2-2
Estimation of available production power
2-2-1 Annual local production The following table shows volume of annual production till the end of 2006: Factory
Volume of annual production (KG) NIL
Total XXX is currently not being produced in Kuwait.
Also, currently there is no operational plant in GCC manufacturing XXX. 2-2-2 Volume of local consumption Volume of local consumption = volume of annual local production + imports = 0+258.1=258.1 metric tons Consumption of XXX in the GCC region was around 8,300 metric tons in 2008 and is expected to reach 9,100 metric tons by 2012 at a CAGR of 2%. 2-2-3 Volume of exports Volume of exports = volume of annual local production + exports = 0+0=0 units 2-2-4 Volume of visible consumption Volume of consumption of XXX depends on volume of alkyd resins, radiation cure monomers, polyvinyl chloride (PVC) stabilizers, polyurethanes, rosin esters, synthetic lubricants, pigment treatment, antioxidants, and explosives production in the country. Year 2006 2007 2008 2009
Consumption of XXX*(MT) 258.1 263.3 268.5 273.9
*Note: Due to dearth of secondary information on end-use applications of XXX in Kuwait, visible consumption for XXX has been determined on the basis of expected growth rate of consumption in the Middle East region
6|Confidential
Based on the above information, we have: Volume of visible consumption Local production Net imports Volume of local consumption (local production + net import) Volume of exports Total volume of local consumption and exports Volume of production power available for licenses Volume of production power required for licenses % of the participation of volume of production power required for licenses compared to the volume of production power available for licenses
273.9 NIL 273.9 273.9 NIL 273.9 5,000
2-3 Estimation of sale prices: In the Kuwaiti market, it is proposed that sale price for XXX will be as shown in the following table: Arranged code 392520 Total
Product XXX
Unit
Quantity
MT
5,000
3- Technical Study Technical study of the project includes: 3-1 3-1-1 3-1– 2
Brief description of production operation Components of the factory Production stages
3-2
Standard specification of products
3-3
Equipment of the project
3-4
Necessary employment for the project
3-5
Necessary raw material for the project
3-6
Public service facilities
3-7
Area of industrial plot and building construction cost
7|Confidential
Unit price (KD) 688
Total value (KD) 3,440,000 3,440,000
3-1
Brief description of production operation
3-1-1 Components of the factory Statement Details Reactor A jacketed and agitated 304 stainless steel reactor with a volume of 4,800 gallons or 18 cubic meters and internal pressure equal to or less than atmospheric pressure equipped with a cooling system to hold temperature at a desired level Neutralizer A 304 stainless steel, vertical cone top and bottom neutralizer tank with capacity of 6,000 gallons Vacuum A vertical tube single effect evaporator, which is made up of copper alloy and Evaporator internal pressure capacity of 5,170kpa, with a heat transfer area of 400 sq m Crystallizer Continuous crystallizer with capacity of 1,200 gallons and is made up of stainless steel Dryer Drum single atmospheric dryer with a drying surface area of 150 sq ft and is made up of carbon steel 3-1-2 Production stages Production operation and stages of production are as explained below: First Step: Reaction A sodium hydroxide solution or calcium hydroxide slurry is added to a formaldehyde solution in a reactor with temperature in the range of 15°C to 20°C. Liquid acetaldehyde is then added to the mixture, leading to an exothermic reaction. External cooling is used to control the temperature at about 25°C for several hours, and it is then raised to about 60°C. Second Step: Neutralization When aldehyde content of the mixture is less than 0.1%, the reaction mixture is fed to the neutralizer tank where formic acid, or sulfuric acid, or oxalic acid is added to neutralize excess alkali. The acid also reacts with metallic ion of the alkali solution to form a salt, which can be removed by filtration. Third Step: Evaporation The solution is then fed to an evaporator, where water is removed to achieve a specific gravity of about 1.27. Lowering the temperature results in the crystallization of XXX, which is removed from the slurry by filtration. The mother liquor is fed to a crystallizer. Fourth Step: Crystallization The concentrated liquor is cooled at a temperature from 5° C to 10° C, during which XXX gets crystallized from the solution. Fifth Step: Drying The filter cake can be dried to yield a technical grade of the product or it may be purified further by conventional methods to get mono grade and nitration grade.
8|Confidential
3-2
Standard specification of XXX:
Mono Grade 98% purity, with di- and tri XXX impurities Technical Grade 88% purity, with 8 to 10% diXXX, balance triXXX Nitration Grade 99% purity, with di- and triXXX impurities with controlled crystal size 3-3 Equipment of the project Prices have been calculated as per exchange rate declared by Kuwaiti National Bank on April 9, 2009 Sr. No.
Code
ProductiEquipment No. Exporters on power kg/hr
Price unit (US$)
Price unit KD
Total price in KD
Encl. No.
Producing equipment
1 2 3 4 5 6 7 8
841989 841989 841940 841939 8419
Reactor 1 India 1,175 Neutralizer 1 India 1,020 Evaporator 3 India 918 Dryer 2 India 394 Crystallizer 3 India 673 1 Machinery Piping, instrumentation and mechanical work License, know-how, and engineering TOTAL
Summary: Total value of imported equipment (FOB) Freight charges charges (5%) charges (7%) Total cost of the equipment after fitting
445,515 57,600 821,911 107,564 171,500
129,873 16,791 239,597 31,356 49,994
129,873 16,791 718,791 62,712 149,983 646,890 431,260 323,445 2,479,745
: : : : :
1
2,479,745 173,582 Transport and un-loading 123,987 Fitting and supervision 173,582 2,950,897
Pumps, filters, drums, heat exchangers, air heaters, silos, dissolvers, centrifuge, screw conveyor, dedusting system, bagging machines, etc.
9|Confidential
1 2 3 5 6 NA NA NA
3-4 Necessary employment for the project Necessary manpower for the factory comprises management employees and technician. Total 32 employees are required to work daily, in two shifts of 8 hours each. Type of Work
No.
Monthly Salary (KD) Indirect Employment Factory manager 1 1,250 Financial manager 1 875 Accountant 1 438 Secretary 1 313 Treasurer 1 188 Sweeper 2 125 Total wages and salaries of indirect employees Direct Employment Production manager 1 1,063 Supervisor 2 563 Machine operator 12 438 Maintenance technician 1 250 Driver 3 250 Labor 3 125 Sales officer 1 750 Sales representative 2 563 Total wages and salaries of direct employees Total 32 Based on the above information, we have: Total annual wages and salaries Insurance of employees (10% of salaries) Total cost of annual employment Total number of workers
: : : :
168,120 16,812 184,932 32
10 | C o n f i d e n t i a l
Total Annual Salary (KD) 15,000 10,500 5,256 3,756 2,256 3,000 39,768 12,756 13,512 63,072 3,000 9,000 4,500 9,000 13,512 128,352 168,120
3-5 Necessary raw material for the production of 5,000 metric tons of XXX: Sr. Base of Price unit Total value Code Kind of items Quantity Unit Exporter No. calculation (KD) (KD) 1 291212 Acetaldehyde, 10.15% 1,960 MT China 300 588,000 99.6% 2 291211 Formaldehyde, 78.4% 15,130 MT Saudi 107 1,618,910 37% Arabia 3 281511 Sodium 10.15% 1,960 MT China 115 225,400 hydroxide, 100% 4 291511 Formic acid, 1.3% 250 MT China 171 42,750 100%
Based on the above information, we have: Value of necessary raw material for the production
:
2,475,060 KD
3-6 General facilities for the production of 5,000 metric tons of XXX: No. Kind Unit Quantity Price Unit KD 1 Electric power Operation of equipment 5,000 750 0.002
2 3 4 5 Total
Lighting and Air conditioning Drinking water Cooling and utilities Steam Demineralized water Fuel gas
5,000 0 5,000 5,000 5,000 5,000
100 38,400 14 14 4 0.55
0.002 0.001 0.0008 0.05 0.3 1.04
Based on the above information, we have: Value of general facilities of production Value of general facilities of non-production Total value of annual general facilities (with support)
11 | C o n f i d e n t i a l
: : :
51,205 38 51,244
Total Value KD 7,500 375 38 56 34,000 6,435 2,839 51,244
3-7 Area of industrial plot and building construction cost The following table outlines industrial plot distribution for the project, encompassing all the requirements of the factory such as production and storing zone, administrative building and other general services.
General Amenities and Laboratory
Administrative Building
Production hall Final production store room
Primary production warehouse
Machines and facilities dimensions are needed
12 | C o n f i d e n t i a l
The following tables show internal area pertaining to the project 1- Necessary area for production hall Sr. Statement of No. Unit No. Equipment Length (m) Reactor 1 1 6 2 Neutralizer 1 6.5 Vacuum Evaporator 3 1 7.5 Crystallizer 4 3 3 Dryer 5 2 6 Machinery 6 Passages and spaces (90%) Total area Catalogue and References missed
Unit Width (m) 4 4.25 5 2.25 4
Necessary Area (m2) for Unit 12.6 15.9 19.6 4*3=12 12.6*2=25.2
B- Necessary Area for warehouse of primary materials: Sr. Kind of Product Unit Quantity of Volume of No. Purchase Warehouse (monthly) 1 Acetaldehyde, 99.6% MT 1,960 1 2 Formaldehyde, 37% MT 15,130 1 3 Sodium hydroxide, MT 1,960 1 100% 4
Formic Acid, 100%
MT
250
1
Necessary Area (m2) for Operation 5 5.7 7.9 4.8 10.1
Total Area (m2)
Enclosure No.
17.6 19.9 82.4 50.4 70.6 70 233.1 544
1 2 3 6 5 NA NA
Quantity Specific Average Volume of Stored Gravity of Unit (m3) 2 2 Items (MT/m ) Area (m ) 163 0.748 0.1348 218 467 0.812 0.0682 575 163
2.1
0.1348
78
21
1.22
0.2678
17
Spaces and Area of storing destitute (40%) Total Area
Storage Method ISO Tank Drum Drum Storage Tank
Required Area(m2) 73 192 26 6 118 414
13 | C o n f i d e n t i a l
C - Necessary Area for warehouse of final / finished materials: Sr. Kind of Product Unit Quantity Volume of Quantity of Specific No of Sale Warehouse Stored Gravity (monthly) Items (MT/m3) 1 Pentaeryt-hritol MT 5,000 1 417 1.396 Spaces and passages (50%) Total Area
Volume of Stored Items (m3) 298
Average Max. Requir of Unit Increase of ed Area (m2) Storing (unit) Area 0.33 10 109 55 164
Total area of the required plot is around (2,480) sq m divided as follows at the cost of the buildings and constructions to the amount of 108,805KD.
Details Purpose
Kind of Construction
Administration bldg. Production hall Primary material warehouse Final product warehouse Laboratory General amenities Internal road (20%) % of municipal conditions Total
Air-conditioned concrete buildings Care be houses Paved land Care be buildings Air-conditioned concrete buildings Concrete buildings Paved land Paved land
Area (Sq m) 150 544 414 164 100 350 344 413 2,480
14 | C o n f i d e n t i a l
Cost of Sq M (KD) 102 72 2.4 72 60 72 2.4 2.4
Total Cost (KD) 15,300 39,163 994 11,819 6,000 25,200 827 992 100,296
Based on the above information, we have: Total necessary area for the project
:
2,480 sq m
Total cost of buildings and constructions
:
100,296KD
Cost of paving lands (0.6KD/ M2)
:
1,488KD
Cost of supervision and engineering land (7%)
:
7,021KD
Total cost of buildings and construction
:
108,805KD
4-
Economic study:
Financial and economic study of the project includes: 4-1 Necessary investment for the project 4-1-1 Estimation of fixed assets 4-1-2 Estimation of foundation cost 4-1-3 Estimation of working capital 4-1-4 Total capital 4-2
Cost of annual production
4-2-1 Annual depreciation 4-2-2 Cost of annual operation 4-2-3 Cost of production 4-3 4-4 4-5 4-6 4-7
Financing of the project Estimation of annual sale value Economic indicators Summary of the project economy Summary of economic indicators
15 | C o n f i d e n t i a l
4-1
Necessary investment for the project
4-1-1 Estimation of fixed assets Cost of fixed assets is calculated as per rate prevailing in the Kuwait market and on the basis of price offer which is enclosed with the study: Fixed Assets Cost of buildings and construction Value of production equipment Air-conditioning Warehouse equipment Office furniture and equipment Outside transport Inside transport Stock of spare parts Total estimation of the fixed assets
Value (KD) 108,805 2,950,897 37,500 5,058 9,921 15,000 13,000 24,797 3,164,978
The total estimation of fixed assets comes to 3,164,978KD. 4-1-2 Estimation of foundation cost: Cost of Foundation Study and technical documents Traveling and consultation expenses Training cost Advertisement Cost of beginning of production and before operation Other expenses Total estimation of foundation cost
Value (KD) 8,000 4,000 12,399 15,825 15,825 7,912 63,961
4-1-3 Estimation of working capital: Estimation of working capital Raw materials warehouse (one month ) Salaries and wages for 2 months Total working capital
Value (KD) 103,128 30,822 133,950
4-1-4 Total investment: Total investment Fixed assets Cost of foundation Working capital Total investment
Value (KD) 3,164,978 63,961 133,950 3,362,888
16 | C o n f i d e n t i a l
4-2
Annual production cost
4-2-1 Annual depreciation Consumer Cost of buildings and construction Value of production equipment Air conditioning Warehouse equipment Office furniture and equipment Outside transport Inside transport Stock of spare parts Total annual depreciation
Original cost 108,805 2,950,897 50,000 5,058 11,409 15,000 13,000 24,797
4-2-2 Annual operation cost Annual operation cost Annual fixed cost Rent of the industrial plot (3 KD / m2) Salary of indirect employees Perks and advantages for indirect employees (5%) Buildings and equipment insurance (0.5%) Auditing Advertisement Traveling and consultation cost General expenses Benefits which are not entered in production Cars insurance Non – periodical maintenance charges Total annual fixed cost Annual chargeable cost Raw material Packing Cost Direct employees salary Perks for direct employees (10%) Maintenance of buildings and constructions (3%) Maintenance of equipment and spare parts (5%) General production facilities Stationery and printing Total annual chargeable cost Total annual operation cost
17 | C o n f i d e n t i a l
% of Depreciation 5% 10% 15% 20% 20% 33% 25% 10%
Value (KD) 7,441 39,768 1,988 15,299 5,000 3,440 10,320 6,880 1,720 420 4,959 97,235 Value (KD) 2,475,060 37,126 128,352 12,835 3,264 147,545 51,240 2,562 2,857,988 2,955,223
Value (KD) 5,440 295,090 5,625 1,012 1,984 4,950 3,250 2,480 319,830
4-2-3 Production cost Annual fixed cost Annual fixed cost Annual depreciation Loan interest Total annual fixed cost
Value (KD) 97,235 319,830 0 417,065
Total production cost
Value (KD) 417,065 2,857,984 3,275,053
Annual fixed cost Annual chargeable cost Total annual operation cost
4-3 Financing of the project The project will be 100% self-financed. Statement
Value (KD) 3,362,888 0 0 0 3,362,888 0
Paid capital Loan from the Industrial Bank Loan from commercial banks Credit facilities Total financing Annual interest on loan (3.5%)
4-4 Estimation of annual sales cost Based on the study of price structure of this product in the local market, the selling rate of the final products were determined as shown in the following table: Arranged code 39252000
Product XXX Total
Unit
Quantity
MT
5,000 5,000
4-5-1 Annual returns of the project: Statement Annual sale value Production cost Earnings from sale of by-products Annual returns of the project 4-5-2 Annual net profit of the project:
18 | C o n f i d e n t i a l
Unit price KD 688
Value (KD) 3,440,000 3,275,053 343,911 508,858
Total value KD 3,440,000 3,440,000
Statement Annual returns of the project Loan interest Manufacturing rights Annual net profit of the project
Value (KD) 508,858 0 16,172 492,685
4-5-3 Net added value to the annual national income: Annual Operation Cost Annual returns of the project Salary of employees Auditing Insurance of buildings and equipment Advertisement cost Car insurance Wages paid to others against their services Total added net value to the annual national income Total annual operation cost
Value (KD) 508,858 184,932 5,000 15,299 15,825 420 500 730,837 3,275,053
4-5-4 Total added value to the annual national income: Statement Total added net value to the annual national income Annual depreciation Total added value to the annual national income
Value (KD) 730,833 319,830 1,050,663
4-5-5 Annual industrial profit: Statement Annual sale value Annual chargeable cost Annual industrial profit
Value (KD) 3,440,000 3,275,053 164,947 `
4-5-6 Limit of production that made neither profit nor loss = 58.9% (Annual production volume - 5,000 units) * (Annual fixed cost - 97,235 KD) / (Annual industrial profit 164,947 KD) = 2,947 units (Annual sale cost - 3,440,000 KD) * (Annual fixed cost - 97,235 KD) / (Annual industrial profit 164,947 KD) = 2,027,858 KD
19 | C o n f i d e n t i a l
4-5-7 Period of recovery of the entire investment (Total investment - 3,362,888 KD) / (Net annual profits of the project- 492,685 KD + Annual depreciation - 319,830 KD) = 4 years, 51 days 4-5-8 Capital intensity of the project Estimation of total investment (3,362,888 KD) / Number of employees (32) = 105,090 KD/employee
4-6
Summary of the project economy Statement Estimation of the value of buildings and constructions Estimation of the value of equipment after fitting Estimation of the value of raw material and packing Estimation of the annual wages Estimation of necessary employees for the project Estimation of total investment Paid capital Estimation of the value of loan Estimation of interest of loan Estimation of the total cost of production Estimation of the annual sale value Estimation of the returns of the project Estimation of the profit of the project Estimation of added net value to the national income Estimation of total added value to the national income Estimation of necessary area of the project (in sq m)
Summary of economic indicators Statement % of project returns to total investment % of profit of the project to paid capital % of paid capital to total investment % of profit of the project to the sale value % of production limit to the quantity of product Period of recovery of the entire investment in years % of wages to the total production cost % of profit to the total annual production cost
Value (KD) 108,805 2,950,897 2,512,186 184,932 32 3,362,888 3,362,888 0 0 3,275,053 3,440,000 508,858 492,685 730,833 1,050,663 2,480
4-7
20 | C o n f i d e n t i a l
Number 15.1 14.7 100.0 14.3 25.9 4.1 5.6 15.0