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TanksRus Manufacturing Inc. - CMA, CPA Board Report

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Senay Yemane CPA, CMA

2015 - CMA CPA Board Report - Case Study: TanksRus Manfacturing By: Richard Vasquez, Evan Claire, Mike Hale, Senay Yemane, Kaylan Pepin, Michael Lakomy

Business
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Table of Contents • Current situation of TRUMike H • Alternative AnalysisEvan • RecommendationRichard • Financial ForecastMike L • Implementation PlanSenay • Operational ImprovementsKaylan Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Current Situational Analysis Mike Hale Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Financing Available Stagnant sales forecasted for next 5 years Poor operating results expected Major Issue Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Financing AvailableSolving Major Issue Provide Diversification Improved Operating Results Improve Profitability Improve Sales Current: Poor results expected Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Financing AvailableImplied Mission Statement Key Points: Metal tank manufacturer High quality, innovative production Oil and agricultural markets Canada and Northern US Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Financing AvailableGoals Net Income After Tax ROI Harding Retains Voting Control • 2017: $800,000 • 2018: $900,000 • 2019: $1,000,000 • 10% required for Capital Projects • Implemented by January 2016 Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Financing AvailableProduction Capacity Constraints Main Facility: 10,000 square feet Second Facility: 15,000 square feet Total: 25,000 square feet Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Financing AvailableInternal Scan - Strengths High Quality Production Good relationship with farm organizations Innovative Culture Experienced Senior Management and staff Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Financing AvailableInternal Scan – Weaknesses Facilities at production capacity + low yard storage capacity Low production employee morale – may join union Inefficiencies: operate multiple sites Tired sales staff and high travel costs Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Financing AvailableExternal Environmental Scan High demand for metal tanks in Alberta – 25.5% of oil industry establishment Canada: one of the largest crop producers in the world Industry revenue is expected to increase at an annualized 2.4% to 2020 Saskatchewan farmers expect profitability to grow Opportunities Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Financing AvailableExternal Environmental Scan Uncertainty in Alberta market from political changes Declining oil prices restrict oil market demand Harsh winters/droughts restrict agricultural demand Shortage of welders in Alberta and Saskatchewan Threats Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Financing AvailableFunds Available Harding $500,000 Toth $300,000 Cash $720,000 Total $1,520,000 Additional Loan for Get Tanked $4,500,000 Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Strong Internal Staff Reduce Production Inefficiencies Diversity Opportunities Available Remain Cautious of Threats Financing AvailableKey Situational Points Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Financing AvailableStrategic Options Available Get Tanked Acquisition Hopper Bottom Cones Salt Silos Metal Recycling Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Financing AvailableOther Options Balgonie Plant Edmonton Sales Office Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Financing AvailableOptions for Further Improvements Hire an HR Manager Introduce Apprenticeship Program Implement ERP Program Improve Bonus Structure Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Strategic Alternative Analysis Evan Clare Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
o Leverages relations with farm organizations o High demand for metal tanks in Alberta o Solves weakness of production/storage space o Contract does not expire until 2025 Get Tanked - Pros Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Get Tanked - Cons o Threat: GT production employees unionized o Inefficiencies due to additional site o Fails to diversify product line o GT tanks not double walled: do not fit mission Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Hopper Bottom Cones – Pros o Leverages relations with farm organizations o Canada: 5% of world wheat production o Crop production revenue climbing 1.5%/yr o Diversifies product offerings Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Hopper Bottom Cones - Cons o Not within production capacity o TRU has no experience in HBC market o Winter/drought threaten agricultural demand o Shortage of welders Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Salt Silos - Pros • Diversifies product offerings • Diversifies customers and opens new markets • Production similar to Metal Tanks • Harsh winters increase demand Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Salt Silos - Cons • Not within production capacity • Additional welders required for production • TRU inexperienced in sale of salt silos • Original contract is short term – 3 years Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Metal Recycling - Pros • Diversifies revenues • Steel demand to increase faster than supply • Shows TRU’s commitment to the environment • TRU profit on own scrap metal Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Metal Recycling - Cons • TRU has no experience in metal recycling • Unfavourable joint venture • Risk: No prior relationship with MSAB • Loan is not repayable for foreseeable future Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Balgonie Plant - Pros o Resolves production capacity constraint o Eliminates weakness of limited storage space o Mitigates multiple site inefficiencies o Good access to highway and nearby amenities Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Balgonie Plant - Cons o Disruption in 2015 production o Remote location o Additional freight costs for materials and supplies o Possibility of employees not willing to commute o Potential for decreased employee morale Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Edmonton Sales Office - Pros o Less travel: improved morale, reduced costs o Entry into Alberta market o Sales growth with “head-on” competition o Diversifies sales by region Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Edmonton Sale Office - Cons o Alberta industry declined in 2012 o Highly competitive Alberta market o Recent decline in oil prices o Political uncertainty in Alberta Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Goal Analysis & Recommendation Richard Vasquez Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Decision Matrix – Strategic (in 000’s) NI Goal Contribution Project Cost ROI 10% (10 Years) Sustained Growth Within Capacity Recommend Get Tanked $3,106 Hopper Bottom Cones $375 Salt Silos $424 Metal Recycling $81 Balgonie Plant $544 Edmonton Sales Office $649 Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
2017 – 2019 Net Income - 500 1,000 1,500 2,000 2,500 3,000 3,500 Edm Office Balgonie Metal Recycling Salt Silos HBC Get Tanked 2017 2018 2019 Get Tanked = Highest Metal Recycling = Lowest Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Decision Matrix – Strategic (in 000’s) NI Goal Contribution Project Cost ROI 10% (10 Years) Sustained Growth Within Capacity Recommend Get Tanked $3,106 $5,476 Hopper Bottom Cones $375 $600 Salt Silos $424 $398 Metal Recycling $81 $218 Balgonie Plant $544 $1,086 Edmonton Sales Office $649 $10 Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Initial Costs of Alternatives $5,000,000 $605,000 $398,000 $218,000 $1,019,300 $10,000 Get Tanked HBC Salt Silos Metal Recycling Balgonie Edm Office $1.52 Million available for other alternatives $6.02 Million available for Get Tanked Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Decision Matrix – Strategic (in 000’s) NI Goal Contribution Project Cost ROI 10% (10 Years) Sustained Growth Within Capacity Recommend Get Tanked $3,106 $5,476 Yes Hopper Bottom Cones $375 $600 Yes Salt Silos $424 $398 Yes Metal Recycling $81 $218 Yes Balgonie Plant $544 $1,086 Yes Edmonton Sales Office $649 $10 Yes Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
10% ROI Goal 27% 103% 207% 42% 138% 10% goal 0% 50% 100% 150% 200% 250% Get Tanked Hopper Bottom Cones Salt Silos Metal Recycling Balgonie Get Tanked = Lowest Salt Silos = Highest ROI After 10 Years Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Decision Matrix – Strategic (in 000’s) NI Goal Contribution Project Cost ROI 10% (10 Years) Sustained Growth Within Capacity Recommend Get Tanked $3,106 $5,476 Yes No Hopper Bottom Cones $375 $600 Yes No Salt Silos $424 $398 Yes Yes Metal Recycling $81 $218 Yes Yes Balgonie Plant $544 $1,086 Yes Yes Edmonton Sales Office $649 $10 Yes Yes Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Sustained Net Income Growth 2020 2021 2022 2023 2024 2025 Get Tanked -8% -10% -18% -17% -23% -32% Hopper Bottom Cones 4% 1% -1% -3% -5% -6% Salt Silos 21% 25% 11% 9% 8% 7% Metal Recycling 8% 12% 10% 3% 3% 3% Balgonie Plant 8% 18% 4% 4% 4% 3% Edmonton Sales Office 22% 6% 6% 6% 6% 6% Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Decision Matrix – Strategic (in 000’s) NI Goal Contribution Project Cost ROI 10% (10 Years) Sustained Growth Within Capacity Recommend Get Tanked $3,106 $5,476 Yes No Increases Hopper Bottom Cones $375 $600 Yes No Yes Salt Silos $424 $398 Yes Yes No Metal Recycling $81 $218 Yes Yes No Balgonie Plant $544 $1,086 Yes Yes Increases Edmonton Sales Office $649 $10 Yes Yes Yes Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
(in 000’s) NI Goal Contribution Project Cost ROI 10% (10 Years) Sustained Growth Within Capacity Recommend Get Tanked $3,106 $5,476 Yes No Increases Hopper Bottom Cones $375 $600 Yes No Yes Salt Silos $424 $398 Yes Yes No Metal Recycling $81 $218 Yes Yes No Balgonie Plant $544 $1,086 Yes Yes Increases Edmonton Sales Office $649 $10 Yes Yes Yes (in 000’s) NI Goal Contribution Project Cost ROI 10% (10 Years) Sustained Growth Within Capacity Recommend Get Tanked $3,106 $5,476 Yes No Increases Hopper Bottom Cones $375 $600 Yes No Yes Salt Silos $424 $398 Yes Yes YES Metal Recycling $81 $218 Yes Yes YES Balgonie Plant $544 $1,086 Yes Yes Increases Edmonton Sales Office $649 $10 Yes Yes Yes Decision Matrix – Strategic Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Recommendation Summary (in 000’s) Salt Silos Balgonie Plant Edmonton Sales Office Total 2017 NI Contribution $228 $142 $55 $425 2018 NI Contribution $135 $191 $251 $577 2019 NI Contribution $61 $211 $342 $614 Project Cost $398 $1,086 $10 $1,494 ROI 10% (10 Years) Yes Yes Yes Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Within Financing Available Salt Silos Balgonie Edm Office $1.49 Million $1.52 Million Cash at April 30, 2015 Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Recommendation Summary (in 000’s) Salt Silos Balgonie Plant Edmonton Sales Office Total 2017 NI Contribution $228 $142 $55 $425 2018 NI Contribution $135 $191 $251 $577 2019 NI Contribution $61 $211 $342 $614 Project Cost $398 $1,086 $10 $1,494 ROI 10% (10 Years) Yes Yes Yes Diversification Increased Capacity Long Term Growth Harding in Control Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Financial Analysis Mike Lakomy Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Projected Income Statement Actual Forecast Forecast Forecast Forecast Forecast 2014 2015 2016 2017 2018 2019 Total Revenues $8,510 $ 8,512 $ 11,152 $ 12,993 $ 13,709 $ 14,327 Total COGS 6,603 6,823 8,710 10,278 10,588 11,234 Gross margin 1,907 1,690 2,442 2,715 3,122 3,093 Total production OH 45 62 225 (7) (248) (352) Total G & A 1,000 1,088 1,364 1,500 1,464 1,566 Total other expenses 123 99 120 128 99 80 Net income $ 555 $ 331 $ 550 $ 821 $ 1,355 $ 1,349 Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Figures in 000s
Revenue Growth $- $2.0 $4.0 $6.0 $8.0 $10.0 $12.0 $14.0 $16.0 2014 2015 (forecasted) 2016 (forecasted) 2017 (forecasted) 2018 (forecasted) 2019 (forecasted) Total Revenue (Millions $) 0% 31% 17% 6% 5% Compound Annual Growth Rate 2014 – 2019: 11% Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Profitability Growth $- $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 $1,400,000 $1,600,000 2014 Actual 2015 Forecast 2016 Forecast 2017 Forecast 2018 Forecast 2019 Forecast Net Income per Year Compound Annual Growth Rate 2014 – 2019: 19% Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
2017-2019 Net Income Goals $21K $455K $349K Above Goals: Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements $800 $900 $1,000 $821 $1,355 $1,349 2017 2018 2019 Goal ForecastFigures in 000s
Increased Production Capacity 25,000 32,500 - 27,500 Current Recommendation Production capacity required Excess Capacity 25,000 total 60,000 total Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Increased Yard Space Space with Recommendation: 10 Acres Current Space: 1.5 Acres 6.7 times more yard space Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Diversification 35% 65% 2014 Sales Mix 43% 44% 13% 2018 Sales Mix AB Metal Tank Sales Other Metal Tank Sales Salt Silo Sales Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements 5.5M 2.9M 6.1M 5.8M 1.7M
Improved Results (in 000s) Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements $8,510 $8,512 $11,152 $12,993 $13,709 $14,327 $555 $331 $550 $821 $1,355 $1,349 2014 2015 (forecasted) 2016 (forecasted) 2017 (forecasted) 2018 (forecasted) 2019 (forecasted) Revenue Net Income
Mitigating Cons & Implementation Senay Yemane Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Mitigating Salt Silos Short contract allows TRU to showcase it’s high quality manufacturing to new customers Salt Silos production doesn’t differ greatly from Metal Tanks Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Mitigating Balgonie Financial incentives to drive to Balgonie Production plan to transition equipment efficiently Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Mitigating Edm Sales Office Changing AB political environment increase’s need to capture demand Not opening the Edmonton sales office will result in flat sales Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Financing AvailableObtain Funding $75,000 Share capital RE $1.536 Million Cash $500,000 Mitch Harding retains 87.56% ownership Total Equity - $2,411,197 Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements $300,00 Share Capital Greg Toth 12.44% ownership
Implementing Salt Silos Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Task Responsibility Construct and submit a competitive bid Greg Toth/Raj Patel Purchase + Install SS equipment in Balgonie Greg Toth/Raj Patel Hire production employees to faciliate SS HR Manager Establish distribution network to Manitoba Greg Toth
Implementing Salt Silos Q4 - 2015 Q1 - 2016Q3 - 2015 Construct and Submit Bid Purchase + Install SS in Balgonie Hire SS Production Staff Establish Distribution Network to Manitoba Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Implementing Balgonie Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Task Responsibility Negotiate fair price for plant Greg Toth/Raj Patel Initiate upgrades to building Greg Toth/Raj Patel Inform employees about financial incentives HR Manager Formulate/execute plan for equipment transfer Raj Patel/ Sash Cossacks/Alex Jiroux Inform business partners – location change Cassandra Wall/Raj Patel
Implementing Balgonie Q4 - 2015 Q1 - 2016Q3 - 2015 Negotiate Price for Plant Initiate upgrades to the building Inform Employees about financial incentives Inform business partners - location change Formulate plan to transfer equipment Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Implementing EDM Sales Office Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Task Responsibility Secure and set up lease site Cassandra Wall/Greg Toth Offer severance/moving allowances HR Manager/Cassandra Wall Inform employees of new Edm sales office HR Manager Hire sales consultant replacement HR Manager/Cassandra Wall
Implementing Edm Sales Office Q4 - 2015 Q1 - 2016Q3 - 2015 Secure and set a new site Offer severance/moving allowance Hire new sales consultants Inform employee of new office Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Operational Improvements Kaylan Pepin Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Operational Improvements Hire and HR Manager Introduce Apprenticeship Program Implement ERP Program Improve Bonus Structure Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
President General Manager HR Manager Administration Staff Sales Manager Sales Staff Production Manager Small Tank Plant Supervisor Production Staff Large Tank Plant Supervisor Production Staff Controller Hire Human Resources Manager Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Hire Human Resources Manager Benefits: Improve employee relations Lead community involvement initiatives. Control its hiring processes and policies Conduct a hiring/incentives review, and employee’s incentives will be standardized Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Hire Human Resources Manager Resolves: Lack of standard hiring process Currently employee incentives vary Controller unaware employee is hired until time card received. Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Introduce Apprenticeship Program Benefits Revenue generated by apprentice exceeds total training costs The net benefit of an apprentice in training increases each year Increased loyalty to the company Assist in recruiting workers, particularly welders which mitigates a weakness of a shortage of welders. Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Introduce Apprenticeship Program Resolves Risk of not attracting employees. Employees have stated they would not consider unionization Negative effect on product quality. Higher turnover rates than industry averages. Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Implement New ERP System Benefits Accounting Invoicing Reporting Shop control CRM Supply chain management Scheduling Inventory Production planning Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Implement New ERP System Resolves No integration between costing and accounting High amount of manual entries causing errors Poor at tracking of inventory levels resulting in inefficiencies Difficulty tracking customer sales data Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Improve Bonus Structures Solution Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Department and individual goals Year-end bonus should be implemented Balanced Score Card Current Alternative Recommendation Implementation Financial Analysis Operational Improvements
Improve Bonus Structures Resolves Lack of bonuses may negatively affect morale. Quality of work may suffer with no reward tied to performance Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
Conclusion Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Provide Diversification Improved Operating Results Improve Profitability Improve Sales Current: Poor results expected
Questions?
Revised Mission TanksRus Manufacturing Inc. (TRU) is a privately owned, Balgonie, Saskatchewan based manufacturer and distributor of standard and customized above ground, steel storage tanks used mainly for storing flammable liquids, and storage silos for road maintenance salts. Our high-quality, innovative small refueling, environmentally friendly, Transport Canada-approved tanks, and salt silos guarantees a solution that fits the needs of customers in the oil and agriculture, and road maintenance industries in Canada and the northern United States.
Revised Vision TRU strives to be the premiere provider of high quality metal tanks and salt silos to the oil and agricultural, and road maintenance industries in Canada and northern United States.
Experiencing poor quality welding requiring high rework • Impact: • Up to 40 weld deficiencies - negatively affects production. • 10 weld deficiencies per tank average. • No tracking system available to track which welders are responsible.
Experiencing poor quality welding requiring high rework • Solution: • Implementing the apprenticeship program will result in higher skilled welders reducing the amount of deficient welds. • Introducing bonuses tied to the BSC will motivate welders to improve quality and efficiencies by incentivizing high quality work along with other factors. • The new ERP system will be configured to allow TRU to track employee labour, and instill accountability in production processes.
Lawsuit pending from past customer • Impact: • Potential financial impact. • Reputational risk from possible negative media.
Lawsuit pending from past customer • Obtain proper legal counsel for this matter. • TRU must consider the customer’s reputation is also at stake since they did not use the equipment properly, and the warranty is expired. • Keep open communication lines with the media. It’s important to assess the customer’s value to TRU and whether they will remain a client. • The customer’s willingness to sue rather than seek resolution indicates an out-of-court resolution is unlikely. • TRU should inform the client of their ability counter sue with a warning of defamation charges if the media is contacted. Offer to repair the tank this time as a compromise. • To avoid this situation in the future, a warranty contract should be included with sales and must be signed before shipment.
Temporary Foreign Worker Program •Effective April 30, 2015, Employment and Social Development Canada administered new hiring approach for TFWs •Based on median hourly wage rather than need for skill • Low-wage positions capped at 20% in 2015; 10% in July 2016 Limiting • Worker must apply for work permit and successfully pass border inspection • Labour Market Impact Assessment must first be completed Time Consuming • Non-refundable $1000 fee per each employee • Responsible for round-trip transportation, housing, workplace safety, paying for private health insurance, and employment contract Expensive
Experiencing long AR collection period Impact: • Some customers are slow to pay, putting a strain on cash flows. • Solution: Need to implement an AR policy with limits of 30 days. Each customer will be contacted by their sales manager and explained the change as well as given proper adjusting time. Interest should be added to receivables outstanding after 90 days. The controller should prepare a monthly report on payment statuses and increase customer contact.
Tracking community involvement • TRU should create a volunteer community relations committee to assist with tracking fundraising, volunteering and working with disadvantaged groups. • Quarterly and annual reports will be provided to the HR Manager who will head the committee and garner company interest to attend events. • Corporate social responsibility reports will be created by the HR Manager and provided to Mitch Harding. • An overall fact sheet will summarize TRU’s impact on the community which will be available on TRU’s website.
Third Party Cradles – Make or Buy Decision Purchase Cradles Cost Savings – In $ and Floor Space ($65/200 crates) (500 Sq Ft.) Increases goodwill by supporting employment for disadvantaged groups
Cradle Purchase Decision Appendix 15: Quantitative Analysis for Third Party Cradles: Note: 1) Comparison assuming one order at 200 crates. 2) 1 crate takes 0.2 hours to make. 3) 40 hours required to make 200 crates. Buy Crates: Make Crates: 200 crates @ $8.45 $ 1,690 Material Costs ($3 * 200) $ 600 Delivery Charge $ 25 Direct Labour (40 hours * $26.5/hr) $ 1,060 Total Cost $ 1,715 Direct proc supplies (20% of Materials) $ 120 Total Cost $ 1,780 Savings using third party provider for every 200 crates: $ 65
Single supplier for sheet metal • Impact: • Recent shipments have been delayed, causing late production. • Solution: Arrange to have backup suppliers to meet emergency orders ensuring sheet steel is always available. A list of backup suppliers has been compiled in the event the main supplier cannot fulfill an order: – Smith Steel – Local Saskatchewan supplier – Russel Metals – Canadian supplier • TRU should set meetings with Raj Patel for Smith Steel and Russel Metals to discuss pricing and the companies’ ability to meet emergency deliveries. The ability to win some of TRU’s business should be discussed.
Website Improvements • Impact: • Management unable to determine the effectiveness of the web site on sales. • An ineffective website does not provide TRU awareness. • Solution: Sandra Harding will retain her duties and will work with the external IT consultant to provide website support along with supporting the ERP. Both parties will implement means to track site visits, number of sales resulting from site visits, and provide customers with tracking status on the website.
TRU has limited storage space for completed goods Solution: Solved with purchasing the plant in Balgonie.
Production employees are considering unionization: Impact: • Unionization will bring higher wage costs. • Solution: Production workers have indicated that adding an apprenticeship program will prevent unionization attempts. It is recommended for TRU to implement apprenticeship training as it will increase the happiness of TRU employees, improve production quality, and prevent unionization.
Production Supervisor ordering inadequately to earn bonus • Impact: • Ethical issue that reduces production quality. • Bonuses are not rewarding proper behavior. • Solution: The Production Supervisor will meet with Raj Patel to discuss the severity of ordering inadequate material to earn a bonus. TRU’s HR manager will create a code of business conduct to promote future ethical conduct. It will promote the values of TRU and create accountability by outlining direct consequences. An ethics seminar should be held for all staff to ensure that all employees are aware of expectations.
Implied Mission TanksRus Manufacturing Inc. (TRU) is a privately owned, Regina, Saskatchewan based manufacturer and distributor of standard and customized above ground, steel storage tanks. Our high-quality, innovative small refueling, environmentally friendly, and Transport Canada-approved tanks guarantees a solution that fits customer’s needs in the oil and agriculture industries in Canada and northern US.
Implied Vision TRU strives to be the premiere provider of high quality metal tanks to the oil and agricultural industries in Canada and northern US.
Strengths (1/2) •All tank models are approved by Transport Canada. •Provide a one year warranty to cover leaks in accordance with standard industry practice. •Most of the sales staff are experienced. •Enjoys a competitive advantage by improving technologies in accordance with trends and innovations in the tank industry. •Able to supply customers' special orders on an ad hoc basis in an expedient manner. •Operate a strong distribution channel. •TRU holds no liability for accidents that occur during transportation of finished goods. •Customers appreciate TRU's shipping option because it is convenient and cost effective. •Management and office staff have been with the company for many years.
Strengths (2/2) •Senior management team has many years of experience in the industry. •All TRU tanks are high quality and double walled which assists in preventing leaks. •TRU has been competitive and strong in its pricing strategies, with moderate sales growth. •Enjoy a good, long-term relationship with farm organizations. •Connected to the community through fundraising, volunteering and working with disadvantaged groups. •The cost of the current lease is below market rate. •Each weld on every tank is tested, resulting in high quality tanks. •Produce environmentally friendly tanks. •Operate interactive web site that is up to date and user friendly. •All sites are in close proximity of each other. •Production employees are non-unionized.
Weaknesses (1/2) •There is no standard hiring process or standard incentive offering to employees. •Current dispute with previous customer experiencing leaking tank that may seek legal action. •Some sales staff are tired of extensive travel. •Welder morale is low and production employees have discussed joining a union to enable them higher wages. •Operate multiple sites, which can lead to inefficiencies. •Travel costs are fairly high. •Higher turnover rates than industry averages among production employees - hourly wages are below market levels. •Current technology does not allow extraction of pertinent sales information from TRU's website. •No integration between costing system and accounting software. •Use one supplier for sheet steel.
Weaknesses (2/2) •Current performance measurement and bonus system is inadequate. •Experience up to 40 deficient welds per tank recently surpassing industry averages of 10 welds per tank. •There are no performance measures for quality. •Improper conduct by Production Supervisor as improper material was ordered to assist in achieving targets to earn bonus. •TRU has a shortage of employees, mostly welders. •Long collection period of 45-60 days. •Current facilities are at production capacity. •TRU has limited storage space for completed goods. •Stagnant sales growth in the next 5 years.
Opportunities (1/2) •World's need for oil will increase by 30% before 2040, increasing demand for steel tanks. •Alberta accounts for 50% of Canada's oil production and production is expected to double by 2020. •Saskatchewan farmers expect their profitability to grow, therefore increasing expenditures. •Oil companies prefer to use local suppliers. •More steel is recycled annually than any other substance in North America. •Introducing automation to a plant can reduce bottlenecks and increase productivity. •Saskatchewan and Alberta have stable economies and a growing population with a strong future outlook.
Opportunities (2/2) •The agricultural sector is the largest single user of metal tanks at 35.4% of the market.18 •Climbing crop, oil, industrial and chemical production will increase demand - in the five years to 2020, industry revenue is expected to increase at an annualized 2.4% to $1.3 billion.18 •Canada is one of the world's largest crop producers, accounting for 5.3% of global wheat production in 2014.18 •Canada's proximity to the United States and NAFTA has helped manufacturers to increase exports, which are expected to climb at 3.0% in 2015.18 •Crop production revenue is forecasted to climb at an annualized 1.5% in the five years to 2020, increasing demand for storage.18 •Increasing demand for industry products is projected to increase profit margins from 6.5% in 2015 to 7.4% in 2020.18 •There is substantial demand for metal tanks in Alberta as it contains 25.5% of oil industry establishment.18
Threats (1/2) •Canada exports 99% of its oil to the US, but the US is expected to become energy self- sufficient by 2035. •Environmental concerns about transporting oil may limit the need for storage tanks. •The Canadian agriculture industry is threatened by increased competition from emerging economies. •Skilled welders are in great demand and short supply in Alberta and Saskatchewan. •The industry is experiencing an increasing level of competition.18 •The oil industry is cyclical and subject to market trends. •Recent political changes in Alberta have caused uncertainty with current policies which creates risk.
Threats (2/2) •Large volume oil producers often take 60 days or more to settle their accounts. •If the recent decline in the world price of oil continues over the next five years, Canadian oil production may decline, reducing demand for metal tanks.18 •High competition in Saskatchewan with over 30 metal tank manufacturers. •Worldwide demand for steel is expected to increase more rapidly than supply, increasing prices at an expected annualized 1.6% to 2020.18 •Demand from crop production is expected to decline in 2015.18 •Harsh winters or droughts can reduce agricultural production, dropping demand for storage tanks.18 •There is increased competition from plastic and composite material tank manufacturers.18
Industry KSF Steel supply: Access to a good steel supply is important. Technology: Utilizing up to date technology such as advanced robotics is key because it allows for reduced cost. Pricing: Important as there is little to differentiate steel tank manufacturers from one another. Exceeding customer expectations: Develop long-term relationships with customers by providing value adding services. Diverse range of clients: Diversifying customers increases revenue performance. Complying with product standards: Must comply with product and government regulations or risk losing customers.1 Highly trained workforce: Requires experienced, certified metalworkers and machinery operators. Strong local presence: Can be essential in gaining contracts since manufacturing often takes place near downstream markets.2
Key Stakeholder Preferences (1/2) Mitch Harding (President): • Prefers to keep a controlling interest of TRU. • Prefers not to outsource production overseas. • A move to small town in Saskatchewan will show TRU is committed to their roots. • Supports metal recycling. • In favor of safeguarding the environment. Greg Toth (General Manager): • Supports having a stronger presence in Alberta. • Prefers to purchase Get Tanked. • Does not support purchasing a plant in a small town. Tina Boyce (Controller): • Wants a payroll system implemented.
Key Stakeholder Preferences (2/2) Cassandra Wall (Sales Manager): • Prefers growing in Alberta by opening a sales office. • Against buying GT. • Prefers producing hopper bottom cones. Raj Patel (Production Manager): • Prefers to manufacture salt silos. • Encourages hiring of foreign workers. • Prefers to purchase property in Balgonie. Sasha Cossacks (Small Tank Plant Supervisor): • Prefers recycling scrap metal for profit. • Prefers manufacturing hopper bottom cones. Alex Jiroux (Large Tank Plant Supervisor): • Prefers producing salt silos. • Prefers plant expansion in Balgonie. • In favor of acquiring GT. • Prefers to head the GT project.
Financial Ratios and Benchmark TanksRus Manufacturing Inc AG Growth International19 Tank Rentals AB Co. Prairie Tank Tanks Steel Industry Avg20 Name Calculation 2014 2013 2012 2014 2013 2012 2014 2014 2014 2014 2014 Current Ratio CA/CL 1.84 1.79 1.71 1.70 1.32 4.27 1.62 2.02 1.95 1.42 1.75 Quick Ratio (Cash+AR)/CL 1.31 0.97 0.05 0.99 0.97 1.98 - - - - 0.90 Debt-to-equity D/E 1.34 1.54 1.89 1.13 1.47 0.95 0.82 1.01 1.22 2.02 1.30 Long term D to E LTD/E 0.51 0.65 0.89 0.59 0.59 0.81 - - - - 0.54 Times interest earned (pre-tax inc+int)/int 11.15 10.43 2.70 4.18 3.47 2.91 20.80 12.20 10.10 3.20 10.20 Return on assets NI/Avg Assets 15.22% 14.42% 2.71% 0.59% 5.28% 4.49% - - - - - Inventory Turnover COGS/Avg Inventory 8.80 4.49 3.76 4.30 4.22 3.56 14.20 9.30 9.80 6.80 7.10 Days Sales Out. Avg AR/(Rev/365) 43.23 28.24 28.67 66.29 56.49 58.96 - - - - - Receivables Turnover Rev/avg AR 8.44 12.93 12.73 5.51 6.46 6.19 12.20 8.80 10.20 7.61 9.40 Return on Equity NI/Avg Equity 36.97% 38.82% 7.48% 2.02% 11.68% 8.77% - - - - - Gross profit margin Gross margin/tot rev 22.41% 21.25% 21.65% 30.89% 31.30% 30.27% 98.20% 20.50% 19.40% 17.83% 33.00% Pre-tax Profit Margin Pre-tax inc/tot Rev 8.69% 8.77% 2.09% 9.05% 10.27% 7.96% - - - - 6.50% Profit Margin NI/Total revenue 6.52% 6.58% 1.57% 1.02% 6.33% 5.47% 8.41% 9.20% 5.92% 3.21% -
Cash Flow to April 30, 2015 Note: 120 days passed in 2015 out of 365 days. Income statement assumed to be earned evenly across 2015, therefore 120 days out of 365 days of financials accounted for in cash flow projection. Start Cash at Dec .31, 2014 $ 667,403 Assumption Collections from 2015 sales $ 1,786,062 43 DSO, 120-43 days not collected=77 days of 2015 collection Collections from 2014 AR $ 1,090,147 43 DSO, therefore all AR collected from 2014 balance sheet Cash paid for direct labour and OH in 2015 $ (1,095,657) All labour worked and OH in 2015 to April 30, 2015 is paid Cash paid for material for 2015 operations $ (835,512) 30 day terms: 90 days of material in 2015 payable Cash paid for 2014 year ending AP $ (620,500) 30 days terms: all 2014 AP is paid Freight paid $ (18,794) 30 days payable for freight, 90 days of freight paid in 2015 Interest paid in 2015 to date $ (17,379) $52,862 of 2015 interest/(365/120 days) Principal paid in 2015 to date $ (27,567) ($5,338.33 x 4 months) + ($18,900/(365/120)) Unallocated production OH + depreciation $ 136,782 Add depreciation and unallocated OH deducted in cost of sales Government remittances (income tax, GST, etc) $ (90,108) Quarterly installments assumed for payments General and admin projected to April 30, 2015 $ (251,530) 30 days payable for costs realized to April 30, 2015. Ending Cash $ 723,348
Base Forecast (000s) (1/3) Actual Forecast Forecast Forecast Forecast Forecast Forecast 2014 2015 2016 2017 2018 2019 2020 Revenue1 $ 8,466 $ 8,466 $ 8,890 $ 8,890 $ 9,334 $ 9,334 $ 9,334 Freight revenue2 $ 44 $ 46 $ 48 $ 51 $ 53 $ 56 $ 59 Total Revenues $ 8,510 $ 8,512 $ 8,938 $ 8,940 $ 9,387 $ 9,390 $ 9,393 Cost of goods sold3 $ 6,503 $ 6,721 $ 6,858 $ 6,982 $ 7,130 $ 7,260 $ 7,394 Freight out4 $ 100 $ 102 $ 104 $ 106 $ 108 $ 110 $ 112 Total cost of goods sold $ 6,603 $ 6,823 $ 6,961 $ 7,087 $ 7,238 $ 7,370 $ 7,506 Gross margin $ 1,907 $ 1,690 $ 1,977 $ 1,853 $ 2,150 $ 2,020 $ 1,887 Production overhead: Depreciation5 $ 410 $ 373 $ 285 $ 242 $ 212 $ 111 $ 71 Engineering Fees/ULC/ISO4 $ 37 $ 38 $ 39 $ 40 $ 40 $ 41 $ 42 Indirect plant wages and benefits4 $ 658 $ 672 $ 685 $ 699 $ 713 $ 727 $ 741 Processing supplies4 $ 361 $ 368 $ 375 $ 383 $ 391 $ 398 $ 406 Rework4 $ 52 $ 53 $ 54 $ 55 $ 57 $ 58 $ 59 Sale of scrap4 $ (11) $ (11) $ (11) $ (12) $ (12) $ (12) $ (12) Plant equipment costs4 $ 218 $ 222 $ 227 $ 231 $ 236 $ 241 $ 246 Building costs4 $ 527 $ 538 $ 549 $ 560 $ 571 $ 582 $ 594 Other production costs4 $ 78 $ 80 $ 81 $ 83 $ 85 $ 86 $ 88 Allocated overhead3 $ (2,286) $ (2,289) $ (2,305) $ (2,305) $ (2,326) $ (2,326) $ (2,326) Total production overhead $ 45 $ 43 $ (21) $ (24) $ (34) $ (93) $ (92)
Base Forecast (000s) (2/3) Actual Forecast Forecast Forecast Forecast Forecast Forecast 2014 2015 2016 2017 2018 2019 2020 General and administrative expenses: Administrative wages and benefits, including contracts4 $ 620 $ 632 $ 645 $ 658 $ 671 $ 684 $ 698 Advertising and marketing4 $ 32 $ 32 $ 33 $ 34 $ 34 $ 35 $ 36 Office costs4 $ 121 $ 124 $ 126 $ 129 $ 131 $ 134 $ 137 Travel4 $ 157 $ 160 $ 163 $ 167 $ 170 $ 173 $ 177 Vehicle expense4 $ 70 $ 72 $ 73 $ 75 $ 76 $ 78 $ 79 Total general and admin. exp. $ 1,000 $ 1,020 $ 1,040 $ 1,061 $ 1,083 $ 1,104 $ 1,126 Bonus expense4 $ 17 $ 17 $ 17 $ 18 $ 18 $ 18 $ 19 Depreciation6 $ 33 $ 29 $ 24 $ 16 $ 8 $ 5 $ 4 Interest expense7 $ 73 $ 53 $ 47 $ 42 $ 37 $ 31 $ 26 Total other expenses $ 123 $ 99 $ 89 $ 76 $ 63 $ 55 $ 48 Total expense before overhead allocation $ 1,168 $ 1,162 $ 1,108 $ 1,114 $ 1,111 $ 1,066 $ 1,083 Pre-tax income $ 740 $ 528 $ 868 $ 739 $ 1,038 $ 954 $ 804 Tax (25%) $ 185 $ 132 $ 217 $ 185 $ 260 $ 238 $ 201 Net income $ 555 $ 396 $ 651 $ 555 $ 779 $ 715 $ 603
Base Forecast (000s) (3/3) Notes: 1: Product selling prices increase 5% in 2016 and 5% in 2018. Sales amounts are equal to 2014 levels. 2: Freight revenue increases 5% annually. 3: Assumption that TRU experiences 2014 sales and product mix in future years. 2016 and 2017 OH rate is $59.65/labour hr and $60.20/labour hr in 2018, 2019 and 2020. Labour rate increases by $0.50 annually. 4: Increase annually with rate of inflation of 2% since production is assumed to remain at 2014 levels. 5: Production depreciation calculated using declining balance method+1/2 year rule. Future capital asset additions are depreciated based on information in Schedule 1 in TRU's 2014 financial statements. 6: Depreciation calculated using declining method with associated CCA rates and planned additions occur. 7: Based on LT debt carrying values and interest rates in Schedule 2 of TRU's 2014 financial statements.
Get Tanked Inc Stmt (1/2) GT Inc Stmt Forecast: 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Total contract sales1 5,468,500 6,257,000 6,257,000 6,570,000 6,691,600 6,691,600 6,691,600 6,691,600 6,691,600 6,691,600 Total retail sales2 1,009,125 1,059,581 1,112,560 1,168,188 1,226,598 1,287,928 1,352,324 1,419,940 1,490,937 1,565,484 1000G COGS3 2,484,727 2,679,402 2,774,868 2,875,291 2,980,992 3,092,313 3,209,623 3,333,318 3,463,821 3,601,590 135G COGS3 1,624,370 1,892,976 1,938,841 1,986,006 2,115,891 2,167,772 2,221,131 2,276,013 2,332,464 2,390,530 Gross margin 2,368,528 2,744,203 2,655,852 2,876,891 2,821,314 2,719,443 2,613,170 2,502,209 2,386,252 2,264,965 Plant wages4 338,130 344,893 351,790 358,826 427,003 435,543 444,254 453,139 462,202 471,446 Amortization5 390,000 348,000 243,600 170,520 119,364 83,555 58,488 40,942 28,659 20,062 Equip repairs/maint6 300,000 350,000 400,000 450,000 500,000 550,000 600,000 650,000 700,000 750,000 Line ch and proc supp7 205,834 209,950 214,149 218,432 222,801 227,257 231,802 236,438 241,167 245,990 Base property lease8 300,000 330,000 330,000 330,000 330,000 330,000 363,000 363,000 363,000 363,000 Lease occupancy9 108,243 125,000 127,500 130,050 132,651 135,304 150,000 153,000 156,060 159,181 Rework10 16,194 18,291 18,424 19,345 19,795 19,949 20,110 20,279 20,456 20,643 Allocated overhead11 (859,488) (931,099) (937,779) (944,793) (966,658) (974,391) (982,510) (991,036) (999,988) (1,009,387) Total production costs 798,914 795,035 747,684 732,381 784,957 807,217 885,144 925,762 971,557 1,020,935 Administrative wages12 375,000 192,500 198,275 204,223 210,350 216,660 223,160 229,855 236,751 243,853 Wages and comm.13 123,896 127,888 132,035 136,345 140,824 145,480 150,322 155,356 160,594 166,042 Amortization14 49,580 39,664 31,731 25,385 20,308 16,246 12,997 10,398 8,318 6,655 Other admin costs15 125,000 125,000 187,500 191,250 195,075 198,977 202,956 207,015 211,155 215,379 Total expenses 673,476 485,052 549,541 557,203 566,557 577,363 589,435 602,624 616,818 631,928 NI before tax and inter 896,139 1,464,116 1,358,626 1,587,307 1,469,801 1,334,862 1,138,591 973,823 797,878 612,102
Get Tanked Inc Stmt (2/2) 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 NI before tax and inter. 896,139 1,464,116 1,358,626 1,587,307 1,469,801 1,334,862 1,138,591 973,823 797,878 612,102 Scenario 1: Fixed interest at 2.25%: Interest expense1 101,250 95,500 89,621 83,609 77,463 71,178 64,751 58,180 51,461 44,591 NI before tax 794,889 1,368,616 1,269,005 1,503,698 1,392,338 1,263,684 1,073,839 915,643 746,416 567,511 Income tax (25%) 198,722 342,154 317,251 375,925 348,085 315,921 268,460 228,911 186,604 141,878 Net income 596,166 1,026,462 951,754 1,127,774 1,044,254 947,763 805,380 686,732 559,812 425,633 Add back depreciation 439,580 387,664 275,331 195,905 139,672 99,801 71,485 51,340 36,977 26,716 Net cash flow 1,035,746 1,414,126 1,227,085 1,323,678 1,183,926 1,047,564 876,865 738,071 596,790 452,349 PV cash flow (10% dis) 941,588 1,168,699 921,927 904,090 735,125 591,323 449,970 344,316 253,097 174,400 Loan princ payment1 255,548 261,298 267,177 273,189 279,336 285,621 292,047 298,618 305,337 312,207 PV of principal 232,317 215,949 200,734 186,592 173,445 161,225 149,866 139,308 129,493 120,369 Scenario 2: Interest only payments for 5 years. Interest at 2.5%: Interest expense2 112,500 112,500 112,500 112,500 112,500 112,500 102,458 92,166 81,616 70,802 NI before tax 783,639 1,351,616 1,246,126 1,474,807 1,357,301 1,222,362 1,036,132 881,657 716,262 541,300 Income tax (25%) 195,910 337,904 311,531 368,702 339,325 305,590 259,033 220,414 179,065 135,325 Net income 587,729 1,013,712 934,594 1,106,106 1,017,976 916,771 777,099 661,243 537,196 405,975 Add back depreciation 439,580 387,664 275,331 195,905 139,672 99,801 71,485 51,340 36,977 26,716 Net cash flow 1,027,309 1,401,376 1,209,926 1,302,011 1,157,648 1,016,573 848,585 712,582 574,174 432,691 PV cash flow (10% dis) 933,917 1,158,162 909,035 889,291 718,808 573,829 435,458 332,425 243,506 166,821 Loan princ payment2 - - - - - 401,664 411,706 421,999 432,549 443,362 PV of principal - - - - - 226,729 211,270 196,866 183,443 170,935
Get Tanked Financials and Goals 10 Year NPV: Disc rate 10%, CCA rate 20% for tax shield, tax rate 25% Goal analysis: Scenario 1 PV Scenario 2 PV Assump 1. 10% ROI required 25.65% - 28.11% Initial costs $ (5,000,000) $ (5,000,000) 2. NI goals: 2017 2018 2019 Equip purch mid '16 $ (476,190) $ (476,190) n=0.5 Base forecasted NI 554,529 778,859 715,134 Sum cash flows '16-'25 $ 6,484,535 $ 6,361,252 GT NI (2.25% interest) 1,026,462 951,754 1,127,774 Tax shield office equip $ 39,439 $ 39,439 i=$247.9K Total NI (2.25% int) 1,580,991 1,730,612 1,842,907 Tax shield plant equip. $ 268,466 $ 268,466 i=$1.5M GT NI (2.5% interest) 1,013,712 934,594 1,106,106 Tax shield new equip. $ 89,489 $ 89,489 i=$500K Total NI (2.5% interest) 1,568,241 1,713,453 1,821,239 Total NPV for 10 years $ 1,405,738 $ 1,282,455 Goal 800,000 900,000 1,000,000 ROI 28.11% 25.65% 3. Implement by 2016 Attainable Payback period 4 Years 153 Days 4 Years 176 Days Constraint analysis: 1. Plant at capacity Excess capacity at 31,250 sq feet
HBC – No Sales Staff, AB wages 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Sales in units 250 263 276 276 276 276 276 276 276 276 Wholesale 18ft sales 560,480 602,045 645,048 657,949 671,108 684,530 698,221 712,185 726,429 740,957 Retail 18ft sales 468,750 498,688 529,177 534,469 539,813 545,211 550,664 556,170 561,732 567,349 Wholesale 21ft sales 249,750 268,515 287,931 293,689 299,563 305,554 311,665 317,899 324,257 330,742 Retail 21ft sales 212,500 223,210 234,113 236,454 238,819 241,207 243,619 246,055 248,516 251,001 Total sales 1,491,480 1,592,457 1,696,269 1,722,561 1,749,303 1,776,503 1,804,169 1,832,309 1,860,933 1,890,049 Note: 5% increase in sales in 2017 and 2018 with sales in units rounded to nearest whole number. Unit sales do not change from 2018 to 2025. Wholesale sales are 60% of sales, retail sales are 40% of sales. 18 ft cones are 75% of sales, 21 ft cones are 25% of sales, wholesale sales prices increase 2% annually, retail sales prices increase 1% annually. Total 18ft material cost 442,571 475,434 509,435 519,623 530,016 540,616 551,429 562,457 573,706 585,180 Total 18 ft labour cost 146,189 157,044 168,275 171,641 175,073 178,575 182,146 185,789 189,505 193,295 Total 21ft material cost 236,118 252,494 269,430 274,819 280,315 285,921 291,640 297,473 303,422 309,490 Total 21 ft labour cost 63,488 67,891 72,445 73,894 75,372 76,879 78,417 79,985 81,585 83,217 Total COGS 888,365 952,863 1,019,585 1,039,977 1,060,776 1,081,992 1,103,632 1,125,704 1,148,218 1,171,183 Total additional labour hrs 6,552.40 6,891.40 7,230.40 7,230.40 7,230.40 7,230.40 7,230.40 7,230.40 7,230.40 7,230.40 Gross margin 603,115 639,594 676,683 682,584 688,527 694,511 700,537 706,605 712,715 718,866 Note: Material cost per unit increases with inflation at 2%, conservative to use AB wage rates, labour rates increase annually with inflation at 2%.
HBC – Sales Staff, AB wages 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Total 18ft sales1 1,175,000 1,249,875 1,326,130 1,339,391 1,352,785 1,366,313 1,379,976 1,393,776 1,407,714 1,421,791 Total 21ft sales1 527,000 558,025 589,618 595,514 601,469 607,484 613,559 619,694 625,891 632,150 Sales w/o sales staff 1,491,480 1,592,457 1,696,269 1,722,561 1,749,303 1,776,503 1,804,169 1,832,309 1,860,933 1,890,049 Incr. sales 210,520 215,443 219,479 212,344 204,951 197,294 189,366 181,161 172,672 163,892 Incr. expenses/(savings): Add'l sales staff salary2 72,000 73,440 74,909 76,407 77,935 79,494 81,084 82,705 84,359 86,047 Add'l retail comm3 51,038 54,300 57,623 58,199 58,781 59,369 59,963 60,562 61,168 61,780 Wholesale comm saving4 (16,205) (17,411) (18,660) (19,033) (19,413) (19,802) (20,198) (20,602) (21,014) (21,434) Additional profit before tax 103,687 105,114 105,607 96,771 87,649 78,233 68,518 58,495 48,158 37,499 *More profitable to hire 2 marketing staff, therefore it is recommended for TRU to hire 2 marketing staff for HBC. Notes: 1) Assuming all sales are retail sales atretail price, 1% sales price growth annually, assuming same sales in units calculated above. 2) Conservative to use AB rates, 2% salary growth per year. 2016 levels of 2 staff at $36,000 each/year. 3) 5% of sales with additional sales staff, less 5% of retail sales without sales staff. 4. 2% of wholesale sales without sales staff
HBC– Low forecast (AB wages) 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Gross margin1 813,635 855,037 896,163 894,928 893,478 891,805 889,903 887,766 885,386 882,758 Plant workers+sales staff2 204,600 208,692 212,866 217,123 221,466 225,895 230,413 235,021 239,722 244,516 Sales commission3 85,100 90,395 95,787 96,745 97,713 98,690 99,677 100,674 101,680 102,697 Incremental OH4 275,201 295,228 315,945 322,264 328,710 335,284 341,989 348,829 355,806 362,922 Engineer, equip repair, maint5 7,000 7,140 7,283 7,428 7,577 7,729 7,883 8,041 8,202 8,366 Proc supplies/mark costs6 75,739 80,452 85,251 86,103 86,964 87,834 88,712 89,599 90,495 91,400 Staff training and survey 55,000 - - - - - - - - - Depreciation7 82,500 140,250 98,175 68,723 48,106 33,674 23,572 16,500 11,550 8,085 Profit before taxes 28,495 32,881 80,856 96,542 102,943 102,700 97,657 89,102 77,932 64,772 Income tax- 25% 7,124 8,220 20,214 24,135 25,736 25,675 24,414 22,275 19,483 16,193 Net income 21,371 24,661 60,642 72,406 77,207 77,025 73,243 66,826 58,449 48,579 Disc cash(add deprec+10% dis) 94,428 136,290 119,321 106,032 85,590 68,735 60,114 42,760 32,655 24,031
HBC – High forecast (Sask wages) 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Profit before taxes - AB wages 28,495 32,881 80,856 96,542 102,943 102,700 97,657 89,102 77,932 64,772 COGS savings - Sask wages8 29,486 31,632 33,851 34,528 35,219 35,923 36,642 37,375 38,122 38,884 Plant worker (savings)9 10,200 10,404 10,612 10,824 11,041 11,262 11,487 11,717 11,951 12,190 Sales staff (savings)9 8,000 8,160 8,323 8,490 8,659 8,833 9,010 9,189 9,373 9,560 Incremental OH (savings)8 39,314 42,175 45,135 46,038 46,959 47,898 48,856 49,833 50,829 51,846 Profit before taxes 115,495 125,252 178,777 196,421 204,821 206,615 203,651 197,215 188,207 177,252 Income tax- 25% 28,874 31,313 44,694 49,105 51,205 51,654 50,913 49,304 47,052 44,313 Net income 86,621 93,939 134,083 147,316 153,616 154,961 152,738 147,911 141,155 132,939 Disc cash(add deprec+10% dis) 153,747 193,545 174,499 162,313 137,779 117,128 109,474 84,369 71,238 59,808
HBC NPV and Goals Disc rate 10%, CCA rate 30% for tax shield, tax rate 25% Goal analysis: Low High 10 Year NPV Analysis: Low PV High PV Assum 1) 10% ROI required 57.89% 147.70% 3) Implement by '16 Capital cost (550,000) (550,000) 2) NI goals: 2017 2018 2019 Attainable Tax shield plant 98,438 98,438 i=550,000 High expected NI 648,468 912,942 862,450 PV of cash flows 769,957 1,263,899 Low expected NI 579,190 839,500 787,540 Total NPV for 10 years 318,395 812,337 Goal 800,000 900,000 1,000,000 ROI 57.89% 147.70% Constraint analysis: 1) Plant at capacity Required 8,000 additional sq ft Payback period 3 Y 316 D 2 Y 230 D
Salt Silo – Bid Price Sales: High Low Medium Weighted 3 YR sales 6,075,000 5,300,000 5,850,000 Price/Unit Units 30 30 30 Price/unit 202,500 176,667 195,000 % prob 20% 20% 60% Prob*Price $ 40,500 $ 35,333 $ 117,000 192,833
Salt Silo – High Bid Price High Contract I/S: 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Sales1 1,822,500 2,430,000 1,822,500 1,549,125 1,626,581 1,707,910 1,793,306 1,882,971 1,977,120 2,075,976 Cost of sales 1,421,550 1,895,400 1,421,550 1,208,318 1,268,733 1,332,170 1,398,779 1,468,717 1,542,153 1,619,261 Gross margin 400,950 534,600 400,950 340,808 357,848 375,740 394,527 414,254 434,966 456,715 Admin support2 48,000 48,960 49,939 50,938 51,957 52,996 54,056 55,137 56,240 57,364 Sales rep3 - - 36,000 64,451 66,205 68,017 69,890 71,826 73,827 75,897 Engineering fees4 145,800 60,750 45,563 77,456 81,329 85,396 89,665 94,149 98,856 103,799 Depreciation5 63,825 97,796 72,658 55,226 43,098 19,641 13,737 9,610 6,725 4,706 Total expenses 257,625 207,506 204,160 248,072 242,589 226,050 227,347 230,721 235,647 241,766 Operating income 143,325 327,094 196,790 92,736 115,259 149,691 167,180 183,532 199,319 214,949 Taxes (25%) 35,831 81,773 49,197 23,184 28,815 37,423 41,795 45,883 49,830 53,737 Net income 107,494 245,320 147,592 69,552 86,444 112,268 125,385 137,649 149,489 161,211 Add back deprec 63,825 97,796 72,658 55,226 43,098 19,641 13,737 9,610 6,725 4,706 Cash flow 171,319 343,117 220,251 124,778 129,542 131,909 139,121 147,259 156,214 165,918 Discounted CF 155,744 283,567 165,478 85,225 80,436 81,905 86,383 91,437 96,997 103,022
Salt Silo – Most Likely Bid Price Weighted Con I/S: 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Sales1 1,735,500 2,314,000 1,735,500 1,475,175 1,548,934 1,626,380 1,707,699 1,793,084 1,882,739 1,976,876 Cost of sales 1,353,690 1,804,920 1,353,690 1,150,637 1,208,168 1,268,577 1,332,006 1,398,606 1,468,536 1,541,963 Gross margin 381,810 509,080 381,810 324,539 340,765 357,804 375,694 394,479 414,203 434,913 Admin support2 48,000 48,960 49,939 50,938 51,957 52,996 54,056 55,137 56,240 57,364 Sales rep3 - - 36,000 63,712 65,429 67,202 69,034 70,927 72,883 74,906 Engineering fees4 138,840 57,850 43,388 73,759 77,447 81,319 85,385 89,654 94,137 98,844 Depreciation5 63,825 97,796 72,658 55,226 43,098 19,641 13,737 9,610 6,725 4,706 Total expenses 250,665 204,606 201,985 243,635 237,930 221,158 222,211 225,328 229,984 235,820 Operating income 131,145 304,474 179,825 80,904 102,836 136,646 153,483 169,151 184,218 199,093 Taxes (25%) 32,786 76,118 44,956 20,226 25,709 34,161 38,371 42,288 46,055 49,773 Net income 98,359 228,355 134,869 60,678 77,127 102,484 115,112 126,863 138,164 149,319 Add back deprec 63,825 97,796 72,658 55,226 43,098 19,641 13,737 9,610 6,725 4,706 Cash flow 162,184 326,152 207,527 115,904 120,225 122,126 128,849 136,473 144,888 154,026 PV of CF (10%) 147,440 269,547 155,918 79,164 74,650 75,830 80,005 84,739 89,964 95,638
Salt Silo – Low Bid Price Low Contract I/S: 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Sales1 1,590,000 2,120,000 1,590,000 1,351,500 1,419,075 1,490,029 1,564,530 1,642,757 1,724,895 1,811,139 Cost of sales 1,240,200 1,653,600 1,240,200 1,054,170 1,106,879 1,162,222 1,220,334 1,281,350 1,345,418 1,412,689 Gross margin 349,800 466,400 349,800 297,330 312,197 327,806 344,197 361,406 379,477 398,451 Admin support2 48,000 48,960 49,939 50,938 51,957 52,996 54,056 55,137 56,240 57,364 Sales rep3 - - 36,000 62,475 64,130 65,838 67,602 69,423 71,305 73,248 Engineering fees4 127,200 53,000 39,750 67,575 70,954 74,501 78,227 82,138 86,245 90,557 Depreciation5 63,825 97,796 72,658 55,226 43,098 19,641 13,737 9,610 6,725 4,706 Total expenses 239,025 199,756 198,348 236,214 230,138 212,977 213,621 216,308 220,514 225,876 Operating income 110,775 266,644 151,452 61,116 82,058 114,830 130,576 145,098 158,963 172,575 Taxes (25%) 27,694 66,661 37,863 15,279 20,515 28,707 32,644 36,275 39,741 43,144 Net income 83,081 199,983 113,589 45,837 61,544 86,122 97,932 108,824 119,222 129,431 Add back deprec 63,825 97,796 72,658 55,226 43,098 19,641 13,737 9,610 6,725 4,706 Cash flow 146,906 297,779 186,248 101,063 104,641 105,763 111,668 118,434 125,947 134,137 Discounted CF 133,551 246,098 139,931 69,027 64,974 65,671 69,337 73,538 78,203 83,289
Salt Silo NPV and Goals 10 Year NPV Analysis: Note: Disc rate 10%, tax rate 25% Goal analysis: High Weighted Low High PV Weight PV Low PV Assump 1) 10% ROI required 226.70% 207.28% 174.80% Initial costs (398,000) (398,000) (398,000) 2) NI goals: Sum PV of cash flows 1,230,194 1,152,895 1,023,620 Base forecasted NI 554,529 778,859 715,134 Tax shield - plant equipment 57,545 57,545 57,545 c=320K, d=0.3 Salt silo NI High 245,320 147,592 69,552 Tax shield - computers 606 606 606 c=3K, d=0.55 Total NI High 799,849 926,451 784,685 Tax shield - leasehold improve 11,932 11,932 11,932 c=75K, d=0.2 Salt silo NI weighted 228,355 134,869 60,678 Total NPV for 10 years 902,277 824,978 695,703 Total NI Weighted 782,884 913,727 775,811 ROI 226.70% 207.28% 174.80% Salt silo NI Low 199,983 113,589 45,837 Payback period 1 Y 241 D 1 Y 264 D 1 Y 308 D Total NI Low 754,512 892,448 760,970 Goal 800,000 900,000 1,000,000 3) Implement by 2016 Attainable Constraint analysis: 1) Plant at capacity 8,000 additional sq ft required
Salt Silo – 3 year NPV and ROI 3 Year NPV Analysis: High PV Weight PV Low PV Assump Initial costs $(398,000) $(398,000) $(398,000) Sum PV of cash flows $ 604,789 $ 572,905 $ 519,580 Sum of tax shields above $ 70,083 $ 70,083 $ 70,083 Sum TS above Total NPV $ 276,872 $ 244,988 $ 191,663 ROI 69.57% 61.55% 48.16%
Inc Stmt – No Salt Silos in 000s (1/2) Actual Forecast Forecast Forecast Forecast Forecast Forecast 2014 2015 2016 2017 2018 2019 2020 Revenue $ 8,466 $ 8,466 $ 9,356 $10,609 $11,900 $12,775 $13,781 Freight revenue 44 46 51 58 65 69 75 Total Revenues 8,510 8,512 9,407 10,666 11,965 12,844 13,856 Cost of goods sold 6,503 6,721 7,218 8,332 9,090 9,937 10,917 Freight out 100 102 139 141 144 147 150 Total cost of goods sold 6,603 6,823 7,356 8,473 9,234 10,084 11,067 Gross margin 1,907 1,690 2,051 2,193 2,730 2,760 2,789 Production overhead: Depreciation 410 373 275 288 233 193 164 Write off LH improvement - - 159 - - - - Engineering Fees/ULC/ISO 37 39 41.49 47.90 52.25 57.12 62.76 Indirect plant wages 658 680 868 1,026 1,057 1,122 1,228 Processing supplies 361 373 476 562 580 615 673 Rework 52 54 69 81 84 89 97 Sale of scrap (11) (11) (14) (17) (18) (19) (20) Plant equipment costs 218 225 287 340 350 372 407 Building costs 527 538 189 135 139 142 146 Other production costs 78 81 103 122 126 133 146 Allocated overhead (2,286) (2,289) (2,426) (2,751) (2,965) (3,183) (3,434) Total production overhead 45 62 27 (164) (363) (478) (532)
Inc Stmt – No Salt Silos in 000s (2/2) Actual Forecast Forecast Forecast Forecast Forecast Forecast 2014 2015 2016 2017 2018 2019 2020 General and administrative expenses: Administrative wages 620 670 791 904 960 1,018 1,079 Advertising and marketing 32 32 212 227 93 102 113 Office costs 121 154 168 172 175 178 181 Travel 157 160 71 73 74 76 77 Vehicle expense 70 72 73 75 76 78 79 Total general and admin. exp. 1,000 1,088 1,316 1,451 1,378 1,452 1,529 Bonus expense 17 17 17 18 18 18 19 Depreciation 33 29 54 67 44 30 21 Interest expense 73 53 47 42 37 31 26 Total other expenses 123 99 119 127 98 80 66 Total expense before OH alloc 1,168 1,248 1,462 1,413 1,114 1,053 1,063 Pre-tax income 740 441 589 780 1,616 1,707 1,726 Tax (25%) 185 110 147 195 404 427 432 Net income $ 555 $ 331 $ 442 $ 585 $ 1,212 $ 1,280 $ 1,295
Inc Stmt – Salt Silos Original Contract Only in 000s (1/2) Actual Forecast Forecast Forecast Forecast Forecast Forecast 2014 2015 2016 2017 2018 2019 2020 Revenue $ 8,466 $ 8,466 $ 11,092 $ 12,923 $ 13,636 $ 12,775 $ 13,781 Freight revenue 44 46 60 70 74 69 75 Total Revenues 8,510 8,512 11,152 12,993 13,709 12,844 13,856 Cost of goods sold 6,503 6,721 8,571 10,137 10,444 9,937 10,917 Freight out 100 102 139 141 144 147 150 Total cost of goods sold 6,603 6,823 8,710 10,278 10,588 10,084 11,067 Gross margin 1,907 1,690 2,442 2,715 3,122 2,760 2,789 Production overhead: Depreciation 410 373 327 377 296 238 197 Write off LH improvement - - 159 - - - - Engineering Fees/ULC/ISO 37 39 188 116 103 57.12 62.76 Indirect plant wages 658 680 868 1,026 1,057 1,122 1,228 Processing supplies 361 373 476 562 580 615 673 Rework 52 54 69 81 84 89 97 Sale of scrap (11) (11) (14) (17) (18) (19) (20) Plant equipment costs 218 225 287 340 350 372 407 Building costs 527 538 189 135 139 142 146 Other production costs 78 81 103 122 126 133 146 Allocated overhead (2,286) (2,289) (2,426) (2,751) (2,965) (3,183) (3,434) Total production overhead 45 62 225 (7) (248) (432) (499)
Inc Stmt – Salt Silos Original Contract Only in 000s (2/2) Actual Forecast Forecast Forecast Forecast Forecast Forecast 2014 2015 2016 2017 2018 2019 2020 General and administrative expenses: Administrative wages 620 670 839 953 1,046 1,018 1,079 Advertising and marketing 32 32 212 227 93 102 113 Office costs 121 154 168 172 175 178 181 Travel 157 160 71 73 74 76 77 Vehicle expense 70 72 73 75 76 78 79 Total general and admin. exp. 1,000 1,088 1,364 1,500 1,464 1,452 1,529 Bonus expense 17 17 17 18 18 18 19 Depreciation 33 29 55 69 44 31 21 Interest expense 73 53 47 42 37 31 26 Total other expenses 123 99 120 128 99 80 66 Total expense before OH alloc 1,168 1,248 1,709 1,621 1,315 1,099 1,096 Pre-tax income 740 441 733 1,094 1,806 1,661 1,693 Tax (25%) 185 110 183 274 452 415 423 Net income $ 555 $ 331 $ 550 $ 821 $ 1,355 $ 1,246 $ 1,270
Metal Recycling Income Statement Steel:1 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Total steel sales 735,000 945,000 1,050,000 1,071,000 1,092,000 1,113,000 1,135,260 1,155,000 1,176,000 1,197,000 Total steel COGS 367,500 472,500 525,000 535,500 546,000 556,500 567,630 577,500 588,000 598,500 Copper:2 Total copper COGS 64,000 80,000 96,000 99,200 102,400 105,600 108,800 112,000 115,200 118,400 Total copper sales 112,000 140,000 168,000 173,600 179,200 184,800 190,400 196,000 201,600 207,200 Wire, alum, batt:3 Total W.A.B. COGS 10,000 12,500 15,000 15,300 15,606 15,918 16,236 16,561 16,892 17,230 Total W.A.B. sales 17,500 21,875 26,250 26,775 27,311 27,857 28,414 28,982 29,562 30,153 Income Statement: 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Gross Margin 423,000 541,875 608,250 621,375 634,505 647,639 661,407 673,921 687,069 700,223 Staff labour4 118,250 186,500 254,750 259,845 265,042 270,343 275,750 281,265 286,890 292,628 Staff benefits5 17,738 27,975 38,213 38,977 39,756 40,551 41,362 42,190 43,033 43,894 Lease+insur+fuel+supp6 140,250 143,055 145,916 148,834 151,811 154,847 157,944 161,103 164,325 167,612 Repairs and maint6 21,800 22,236 22,681 23,134 23,597 24,069 24,550 25,041 25,542 26,053 Transportation7 45,600 45,600 45,600 46,512 47,442 48,391 49,359 50,346 51,353 52,380 Depreciation 22,325 40,896 34,298 29,250 25,315 17,214 9,754 7,796 6,233 4,985 Pre tax income 57,038 75,613 66,792 74,822 81,541 92,223 102,688 106,180 109,693 112,671 Tax (25%) 14,259 18,903 16,698 18,706 20,385 23,056 25,672 26,545 27,423 28,168 Net income 42,778 56,710 50,094 56,117 61,155 69,167 77,016 79,635 82,269 84,503 Add back depreciation 22,325 40,896 34,298 29,250 25,315 17,214 9,754 7,796 6,233 4,985 Net cash flow 65,103 97,606 84,393 85,367 86,471 86,381 86,770 87,431 88,502 89,488 NI to TRU8 21,389 28,355 25,047 28,058 30,578 34,584 38,508 39,818 41,135 42,252 Net cash flow to TRU8 32,552 48,803 42,196 42,683 43,235 43,191 43,385 43,715 44,251 44,744 Discounted CF to TRU9 29,592 40,333 31,703 29,153 29,530 26,818 24,490 22,433 20,644 18,976
Metal Recycling Loan Calculations Loan calculations: 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Beg Loan amount 109,000 109,041 108,386 108,061 107,435 106,557 105,279 103,608 101,806 99,873 Payment amount of loan1 2,139 2,835 2,505 2,806 3,058 3,458 3,851 3,982 4,113 4,225 Interest (2% $109,000) 2,180 2,180 2,180 2,180 2,180 2,180 2,180 2,180 2,180 2,180 Principal portion2 (41) 655 325 626 878 1,278 1,671 1,802 1,933 2,045 End loan amount2 109,041 108,386 108,061 107,435 106,557 105,279 103,608 101,806 99,873 97,828 PV payments (10% disc) 1,944 2,343 1,882 1,916 1,899 1,952 1,976 1,858 1,745 1,629 Notes: 1) 10% of MSAB's NI is the payment made to TRU. 2) Principal: payment less interest. End loan amount: Beginning amount less principal.
Metal Recycling NPV and Goals 10 Year NPV Analysis: PV Assumptions Goal analysis: Initial costs $(218,000) Loan and capital amounts 1) 10% ROI required 42.30% Sum PV cash flows $ 273,672 10% discount rate 2) NI goals: 2017 2018 2019 Tax shield bins $ 8,352 10% disc, 20% CCA,1/2 to TRU Base forecasted NI 554,529 778,859 715,134 Tax shield computer $ 303 10% disc, 55% CCA, 1/2 to TRU Metal recycling NI 28,355 25,047 28,058 Tax shield car crusher $ 4,773 10% disc, 20% CCA,1/2 to TRU Total expected NI 582,884 803,906 743,192 Tax shield Lease improve $ 3,977 10% disc, 20% CCA,1/2 to TRU Goal 800,000 900,000 1,000,000 Sum PV Int payments $ 19,144 10% disc, 2016-2025 3) Implement by 2016 Attainable Total NPV for 10 years $ 92,221 ROI 42.30% Constraint analysis: Payback period 4 Y 327 D 1) Plant at capacity Not applicable
Balgonie – High and Low Costs Initial costs: Low cost High cost Property price 245,000 375,000 Legal cost 7,350 11,250 Building upgr+plant equip 700,000 700,000 Total initial/capital costs 952,350 1,086,250
Balgonie – New Costs Costs - new facility: 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Lease penalty1 56,572 - - - - - - - - - Additional freight costs2 35,000 35,700 36,414 37,142 37,885 38,643 39,416 40,204 41,008 41,828 Employee incentive3 48,000 48,000 48,000 48,000 48,000 - - - - - Property tax - new build4 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 Amortization5 70,000 125,500 100,200 81,255 66,882 55,821 47,177 40,317 34,785 30,256 Utility costs new building2 48,000 48,960 49,939 50,938 51,957 52,996 54,056 55,137 56,240 57,364 Insur. costs new building2 32,000 32,640 33,293 33,959 34,638 35,331 36,037 36,758 37,493 38,243 Total new costs 304,572 305,800 282,846 266,294 254,362 197,790 191,686 187,415 184,526 182,692 Notes: 1) 3 months rent main facility: ($12/ square foot, $2.5 operating/sq foot*inflation at 2% for two years*15,000 square feet)/4 2) Assuming annual inflation at 2%. 3) 4,000 per month for 5 years. 4) Taxes do not increase until 2025. 5) Declining balance method with half year rule. Building beg UCC: $650,000, CCA: 10%. Plant equip beg UCC: $250,000, CCA: 30%.
Balgonie – Cost Savings Cost savings old facil: 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Main facility rent1 226,287 248,916 273,807 279,283 284,869 290,566 296,378 302,305 308,351 314,518 2nd facility rent2 143,055 157,361 173,097 176,558 180,090 183,691 187,365 191,113 194,935 198,834 Third facility rent3 18,727 19,102 19,484 19,873 20,271 20,676 21,090 21,512 21,942 22,381 Main facility utility costs4 30,600 31,212 31,836 32,473 33,122 33,785 34,461 35,150 35,853 36,570 2nd facility utility costs4 30,600 31,212 31,836 32,473 33,122 33,785 34,461 35,150 35,853 36,570 Facility insurance5 7,140 7,283 7,428 7,577 7,729 7,883 8,041 8,202 8,366 8,533 Total savings 456,409 495,085 537,489 548,238 559,203 570,387 581,795 593,431 605,299 617,405 Total new costs6 304,572 305,800 282,846 266,294 254,362 197,790 191,686 187,415 184,526 182,692 Annual savings/profit 151,837 189,285 254,643 281,944 304,841 372,597 390,109 406,015 420,774 434,713 Additional taxes (25%) 37,959 47,321 63,661 70,486 76,210 93,149 97,527 101,504 105,193 108,678 Savings after tax/NI 113,878 141,964 190,982 211,458 228,631 279,448 292,582 304,511 315,580 326,035 Add back depreciation 70,000 125,500 100,200 81,255 66,882 55,821 47,177 40,317 34,785 30,256 Added cash flows 183,878 267,464 291,182 292,713 295,513 335,269 339,759 344,828 350,365 356,291 PV of cash flows 167,162 221,044 218,769 199,927 183,490 304,790 280,793 259,074 239,304 221,229 Notes: 1) 15,000 sq ft x $14.50/sq ft in 2014 with 2% growth 2015 and 2016. 10% cost growth in 2017 and 2018, 2% cost growth thereafter. 2) 10,000 sq ft x $13.75/sq ft in 2014. Same annual increases as main facility. 3) $1,500/month in 2014, with 2% annual inflation. 4) $2,500/month in 2015 with 2% annual inflation. 5) $7,000 expense in 2015 with 2% annual inflation. 6) Calculated on prev. page in Appendix 10.
Balgonie – NPV and Goal 10 Year NPV Analysis: Note: Disc rate 10%, tax rate 25% Goal analysis: High NPV Low NPV Assumption 1) 10% ROI required 122.59% - 153.89% > 10% goal Initial costs (952,350) (1,086,250) 2) NI goals: 2017 2018 2019 PV cash flows 2,295,582 2,295,582 Base forecasted NI $554,529 $778,859 $ 715,134 Tax shield building 77,557 77,557 i=650,000, CCA=10% Balgonie NI effect $141,964 $190,982 $ 211,458 Tax shield plant equipment 44,744 44,744 i=250,000, CCA=30% Total expected NI $696,493 $969,841 $ 926,592 Total NPV for 10 years 1,465,534 1,331,634 Goal $800,000 $900,000 $1,000,000 ROI 153.89% 122.59% 3) Implement by 2016 Attainable Payback period 3 Y 362 D 4 Y 63 D Constraint analysis: 1) Plant at capacity Increases capacity to 60,000 sq ft
Town of Balgonie Information • Small, but growing town: • 2011 population of 1,625 • 2006 to 2011 population growth rate of 17.4% • 3.17 km2 of land area • Balgonie is promoting commercial growth: • Annual property taxes will remain at $15,000 until 2025 • 25 km East of Regina on the Trans-Canada Highway • Sufficient train access: • CPR mainline parallels the Trans-Canada Highway • TRU’s community involvement can have a significant impact on Balgonie • Amenities: • Library, multiplex, swimming pool, hockey rinks, golf courses, restaurants.
Alberta Base Sales Projections Annual AB Revenue Projections without sales office in AB: 2014/15 revenue $ 8,466,400 2016 forecast AB rev $ 3,111,402 % AB revenue 35% 2018 forecast AB rev $ 3,266,972 2015 forecast AB rev $ 2,963,240 Note: Assumed that AB sales remain flat, and are at same sales volumes as 2014 without a sales office in Alberta. 5% scheduled price increases in '16 and '18, increasing sales revenue in 2016 and 2018 over previous years totals by 5%.
Edmonton Office – Income Statement in 000s Margin Analysis Assuming no Sales Office in Alberta (Thousands $): 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 AB rev without AB office1 $ 3,111 $ 3,111 $ 3,267 $ 3,267 $ 3,345 $ 3,446 $ 3,549 $ 3,656 $ 3,765 $ 3,878 AB GM without AB office2 622 622 653 653 669 689 710 731 753 776 Relevant Revenue and Cost Analysis for Opening Sales Office in Alberta (Thousands $): Expected rev with AB office3 $ 3,578 $ 4,830 $ 5,833 $ 6,708 $ 7,714 $ 8,100 $ 8,505 $ 8,930 $ 9,376 $ 9,845 Expected GM with AB office2 716 966 1,167 1,342 1,543 1,620 1,701 1,786 1,875 1,969 Incremental GM with AB office 93 344 513 688 874 931 991 1,055 1,122 1,193 Expenses/(savings): AB Additional sales salary4 - 37 38 39 40 41 41 42 43 44 Incremental sales comm.5 23 86 128 172 218 233 248 264 281 298 Sev/mov all/lease set up6 85 - - - - - - - - - Lease7 30 32 33 35 36 38 40 42 44 47 Utilities8 6.00 6.12 6.24 6.37 6.49 6.62 6.76 6.89 7.03 7.17 Telephone9 7.20 8.57 8.74 8.91 9.09 9.27 9.46 9.65 9.84 10.04 Insurance8 1.20 1.22 1.25 1.27 1.30 1.32 1.35 1.38 1.41 1.43 Advertising and mark10 179 193 58 67 77 81 85 89 94 98 Travel savings11 (140) (143) (146) (149) (152) (155) (158) (161) (164) (167) Travel costs8 48 49 50 51 52 53 54 55 56 57 Profit added before taxes (146) 74 335 456 585 623 663 705 750 797 Income tax (25%) (37) 18 84 114 146 156 166 176 188 199 Net profit added $ (110) $ 55 $ 251 $ 342 $ 438 $ 467 $ 497 $ 529 $ 563 $ 598
Edmonton Office – Goal Analysis Goal analysis: 1) 10% ROI required - No investment required 3) Implementation by 2016 Attainable 2) NI goals: 2017 2018 2019 Constraint analysis: Base forecasted NI 554,529 778,859 715,134 1) Plant at capacity No additional capacity required Balgonie NI effect 55,210 251,063 342,308 Total expected NI 609,739 1,029,921 1,057,441 Payback period 2 Y 124 D Goal 800,000 900,000 1,000,000
Advantage of Edmonton Office Over Only Moving Staff to Alberta • More reputable to customers • TRU has more control over sales people • Travel costs may increase without office • Lease, utilities, and insurance is projected to be $37,200 in 2016 • Lease increases at 5% per year • Utilities and insurance increase at 2% per year • Low cost for premises and solid value for benefits associated with office • Expected sales growth may not be realized without reputable space and sufficient control on sales staff
Alternative Goal Comparison Get Tanked1 HBC1 Salt silos2 Metal Rec Balgonie1 Edm office Cost $ 5,000,000 $ 605,000 $ 398,000 $ 218,000 $1,019,300 $ 10,000 PV Additional cost $ 476,190 $ - $ - $ - $ - $ - 2017 net income $ 1,020,087 $ 59,300 $ 228,355 $ 28,355 $ 141,964 $ 55,210 2018 net income $ 943,174 $ 97,362 $ 134,869 $ 25,047 $ 190,982 $ 251,063 2019 net income $ 1,116,940 $ 109,861 $ 60,678 $ 28,058 $ 211,458 $ 342,308 ROI (10 years) 26.88% 102.79% 207.28% 42.30% 138.24% N/A Payback period 4 Y 165 D 3 Y 90 D 1 Y 264 D 4 Y 322 D 4 Y 30 D 2 Y 124 D
Balgonie and HBC Not Feasible Balgonie Plant Purchase and HBC Alternative: Balgonie cost $ 1,019,300 HBC cost $ 605,000 Total required $ 1,624,300 Total available $1,523,348
Recommendation: Goal and Constraints Financing: Constraint analysis: (figures in square feet) Salt silos $ 398,000 Base production required 25,000 Balgonie (assuming worst case) $ 1,086,250 Salt silo production required 8,000 Edmonton office $ 10,000 Balgonie capacity 60,000 Total cost of alternatives (worst case) $ 1,494,250 Excess capacity 27,000 Financing available at May 1, 2015 $ 1,523,348 Net income goals: Base Salt silos Balgonie Edm office Total Goal 2017 $ 554,529 $ 228,355 $ 141,964 $ 55,210 $ 980,058 $ 800,000 2018 $ 778,859 $ 134,869 $ 190,982 $ 251,063 $1,355,772 $ 900,000 2019 $ 715,134 $ 60,678 $ 211,458 $ 342,308 $1,329,577 $ 1,000,000 ROI goals: Salt silos Balgonie Edm office 10 year ROI 207.28% 138.24% N/A Goal 10% 10% 10% *All alternatives can be implemented by 2016*
ERP Price Starting Price 20,000 Minimum revenue that system will facilitate 1,000,000 Estimate of TRU's revenue 10,000,000 TRU revenue/minimum revenue 10 Ratio x starting price 200,000 Expected cost of ERP
Triple Bottom Line ScorecardFinancial Accountability Perspective Objective Measure Targets Improve profitability Increase net income after tax NI after-tax of $800k in 2017, $900k in 2018 & $1M in 2019 Improve sales results Revenue growth Annual increase in sales revenue greater than market growth rate of 2.4% Ensure efficient use of capital Invest in profitable ventures Min ROI required of 10% for projects Customer Perspective Objective Measure Targets Diversify product offerings Provide customers with a wider variety of products Manufacture salt silos Improve community involvement Involvement in charitable causes TRU is involved in a minimum of 1 charitable event per quarter Diversify market segments Gain customers in new market segments Pursue salt silo venture and gain Government as a client Customer satisfaction Offer desired products at desired specifications to customers Improved customer feedback from surveys Internal Process Perspective Objective Measure Targets Diversify sheet steel suppliers Number of sheet steel vendors Maintain 3 suppliers of sheet steel Improve welding quality Decrease number of deficient welds per tank In line with averages of 10 deficient welds per tank by the end of 2016 Establish sufficient HR department Standardize hiring practices and incentives Create standardization across TRU by the end of 2015 Employee satisfaction Employee surveys and retention Seek for continuous improvement in employee surveys, and increases in retention Environment Perspective Objective Measure Targets Energy Energy Consumption footprint Annual reduction in energy footprint Packaging Paperless office Become paperless office by Jan 2018 Greenhouse Gases Total greenhouse gases Annual reduction in greenhouse gases
Action Plan - Strategic Task Responsibility Start End Costs Recommendation: Present case and recommendation Boyce Jun-15 Jun-15 Salary exp Obtain financing from Harding and Toth Harding/Toth Jun-15 Jun-15 Salary exp Release statement to TRU employees Harding Jun-15 Jun-15 Salary exp Salt Silos: Construct and submit a competitive bid Toth/Patel Jun-15 Jul-15 Salary exp Purchase+install SS equipment in Balgonie Harding/Toth/ Patel Aug-15 Dec-15 Salary exp Hire production employees to facilitate SS HR Manager Oct-15 Dec-15 Salary exp Establish distribution network to Manitoba Toth Nov-15 Jan-16 Salary exp
Action Plan – Other Alternatives Balgonie: Responsibility Start End Costs Negotiate fair price for plant Harding/Patel Jun-15 Jun-15 Salary exp Initiate upgrades to building Toth/Patel Jun-15 Jun-15 Salary exp Inform employees about financial incentives Harding Jul-15 Jul-15 Salary exp Formulate/execute plan for equip transfers Patel/Cossacks/ Jiroux Jun-15 Dec-15 Salary exp Inform business partners - location change Wall/Patel Dec-15 Mar-16 Salary exp Edmonton Sales Office: Secure and set up lease site in Edmonton Wall/Harding Jun-15 Dec-15 $10K Offer severance/moving allowances HR Man/Wall Oct-15 Dec-15 $75K Hire salespeople replacements HR Man/Wall Oct-15 Dec-15 Salary exp
Action Plan – Minor Issues (1/3) New Human Resource Manager: Responsibility Start End Costs Hire HR Manager + company orientation Toth Jun-15 Jun-15 $75K/year Start social committee/track involvement HR Manager Aug-15 Sep-15 Salary exp Create and implement BSC+restructure bonus plan to align with BSC Boyce/Toth/Hardi ng/HR Man Jul-15 Dec-15 Salary exp Notify employees about BSC and bonuses Harding Jan-16 Jan-16 Salary exp Create social reports+introduce control to update website after charitable events HR Manager Sep-15 Oct-15 Salary exp Standardize benefits/implement hire control HR Manager Feb-15 Mar-15 Salary exp Create+distribute employee surveys HR/Patel/Wall Jan-15 Mar-15 Salary exp Ensure Sufficient Steel Supply: Contact suppliers and secure business Patel Jun-15 Jul-15 Salary exp
Action Plan – Minor Issues (2/3) Lawsuit: Responsibility Start End Costs Inform legal counsel for advise Toth Jun-15 Jun-15 $2K Contact party to attempt a resolution Wall/Toth Jun-15 Aug-15 Salary exp Create warranty waiver to include with sales Wall Jun-15 Jul-15 Salary exp Implement Red Seal Apprenticeship Training: Fill out paperwork to register with Red Seal HR Manager Jun-15 Jul-15 Salary exp Stagger emp. schedules to attend courses HR Man/Patel Jun-15 Jul-15 Salary exp Hire journeymen for a 3:1 ratio HR Man/Patel Jun-15 Aug-15 Salary exp Communicate offering - apprenticeship Harding Jun-15 Aug-15 Salary exp Complete apprenticeship paperwork HR Manager Jun-15 Aug-15 Salary exp Decrease Days Sales Outstanding: Contact customers re: new AR policy Wall Jun-15 Aug-15 Salary exp
Action Plan – Minor Issues (3/3) Task Responsibility Start End Costs Purchasing Third Party Cradles: Begin business relationship with comp. Patel Jun-15 Jul-15 Salary exp Clear cradle production area Patel Jan-15 Mar-15 Salary exp Ethics: Draft Code of Business Conduct HR Manager Jun-15 Jun-15 Salary exp Communicate code of conduct to empl. Harding Jul-15 Jul-15 Salary exp Warn prod. employee/ethics training HR Man/Patel Jun-15 Jun-15 $ 500 Hold ethics seminar for staff HR Manager Jul-15 Jul-15 $10K Implement ERP System/website Improvements: Hire external IT Consultant Toth/HR Man Jun-15 Jun-15 $35K/year Purchase ERP system Harding/Toth Jul-15 Jul-15 $200K Train staff to use ERP IT consultant Aug-15 Dec-15 Salary exp Clone data and implement ERP IT consultant Dec-15 Dec-15 Salary exp Change website to meet needs IT consultant Jan-16 Feb-16 Salary exp
Pro Forma – Cash Flow in 000s Cash Flow From Operations - Indirect Method: 2015 2016 2017 2018 2019 2020 Net Income $ 331 $ 550 $ 821 $ 1,355 $1,349 $1,380 (Increase)/Decrease in AR $ (0) $ (338) $ (236) $ (92) $ (79) $ (139) (Increase)/Decrease in Inventory $ (0) $ (172) $ (120) $ (47) $ (40) $ (71) (Increase)/Decrease in Prepaid Expenses $ (0) $ (46) $ (32) $ (12) $ (11) $ (19) Total Cash Flow From Current Assets $ (0) $ (556) $ (388) $ (151) $ (130) $ (229) Increase/(Decrease) in AP $ 0 $ 192 $ 134 $ 52 $ 45 $ 79 Increase/(Decrease) in dues to gov't agencies $ 0 $ 76 $ 53 $ 21 $ 18 $ 31 Increase/(Decrease) other liabilities $ 0 $ 64 $ 44 $ 17 $ 15 $ 26 Increase/(Decrease) current portion of LTD $ - $ - $ - $ - $ - $ - Increase/(Decrease) in income taxes payable $ (75) $ 73 $ 90 $ 178 $ (2) $ 11 Total Cash Flow From Current Liabilities $ (74) $ 405 $ 321 $ 268 $ 76 $ 147 Total Cash Flow From Operations $ 256 $ 398 $ 754 $ 1,472 $1,294 $1,298 Cash Flow From Investing: (Increase)/Decrease in Capital Assets1 $(1,216) $ 536 $ 320 $ 340 $ 144 $ 218 Total Cash Flow From Investing $(1,216) $ 536 $ 320 $ 340 $ 144 $ 218 Increase/(Decrease) long term debt $ (83) $ (83) $ (83) $ (83) $ (83) $ (83) Proceeds from issuance of share capital2 $ 800 $ - $ - $ - $ - $ - Dividends (Paid)3 $ - $ - $ - $ - $ - $ - Total Cash Flow From Financing $ 717 $ (83) $ (83) $ (83) $ (83) $ (83) Net increase in cash $ (243) $ 851 $ 991 $ 1,729 $1,355 $1,434 Cash and equiv balance beginning of the year $ 667 $ 425 $ 1,276 $ 2,267 $3,996 $5,352 Cash balance end of the year $ 425 $ 1,276 $ 2,267 $ 3,996 $5,352 $6,785
Pro Forma – Balance Sheet in 000s (1/2) Assets Actual Forecast Forecast Forecast Forecast Forecast Forecast Current Assets: 2014 2015 2016 2017 2018 2019 2020 Cash $ 667 $ 425 $ 1,276 $ 2,267 $ 3,996 $ 5,352 $ 6,785 Net accounts receivable 1,090 1,090 1,429 1,664 1,756 1,835 1,974 Inventory 555 556 728 848 895 935 1,006 Prepaid expenses 148 148 194 227 239 250 269 Total current assets 2,461 2,219 3,626 5,006 6,886 8,372 10,034 Long term Assets: Leasehold improvements 239 159 - - - - - Office equipment 20 15 10 3 1 1 0 Manufacturing equipment 977 1,254 963 781 546 489 342 Vehicles 69 48 34 24 17 12 8 Land - 119 119 119 119 119 119 Building - 725 689 620 558 502 452 Operating software - 200 170 119 83 58 41 Total long term Assets 1,305 2,521 1,985 1,665 1,325 1,181 963 Total Assets $3,767 $ 4,740 $ 5,612 $ 6,671 $ 8,211 $ 9,553 $10,997
Pro Forma – Balance Sheet in 000s (2/2) Liabilities Actual Forecast Forecast Forecast Forecast Forecast Forecast Current Liabilities: 2014 2015 2016 2017 2018 2019 2020 Trade Accounts Payable $ 621 $ 621 $ 813 $ 947 $ 1,000 $ 1,045 $ 1,124 Due to government agencies 244 244 319 372 392 410 441 Other liabilities and acc exp 205 205 268 313 330 345 371 Current portion of LTD 83 83 83 83 83 83 83 Income taxes payable 185 110 183 274 452 450 460 Total current liabilities 1,337 1,262 1,667 1,988 2,256 2,332 2,479 Bank loan 201 182 163 144 125 106 88 Venture capital payable 618 554 490 426 362 297 233 Total Long-term debt 819 736 653 570 487 404 321 Total Liabilities 2,155 1,998 2,320 2,558 2,743 2,736 2,800 Equity Share capital 75 875 875 875 875 875 875 Current earnings 555 331 550 821 1,355 1,349 1,380 Beginning Retained earnings 1,314 1,536 1,867 2,417 3,238 4,593 5,942 Dividends paid (333) - - - - - - Total end retained earnings 1,536 1,867 2,417 3,238 4,593 5,942 7,322 Total Equity 1,611 2,742 3,292 4,113 5,468 6,817 8,197 Liabilities and equity $3,767 $ 4,740 $ 5,612 $ 6,671 $ 8,211 $ 9,553 $10,997
Pro Forma – Income Statement in 000s (1/2) Actual Forecast Forecast Forecast Forecast Forecast Forecast 2014 2015 2016 2017 2018 2019 2020 Revenue $ 8,466 $ 8,466 $11,092 $12,923 $13,636 $14,250 $15,330 Freight revenue 44 46 60 70 74 77 83 Total Revenues 8,510 8,512 11,152 12,993 13,709 14,327 15,413 Cost of goods sold 6,503 6,721 8,571 10,137 10,444 11,087 12,125 Freight out 100 102 139 141 144 147 150 Total cost of goods sold 6,603 6,823 8,710 10,278 10,588 11,234 12,275 Gross margin 1,907 1,690 2,442 2,715 3,122 3,093 3,138 Production overhead: Depreciation 410 373 327 377 296 238 197 Write off LH improvement - - 159 - - - - Engineering Fees/ULC/ISO 37 39 188 116 103 137 147 Indirect plant wages 658 680 868 1,026 1,057 1,122 1,228 Processing supplies 361 373 476 562 580 615 673 Rework 52 54 69 81 84 89 97 Sale of scrap (11) (11) (14) (17) (18) (19) (20) Plant equipment costs 218 225 287 340 350 372 407 Building costs 527 538 189 135 139 142 146 Other production costs 78 81 103 122 126 133 146 Allocated overhead (2,286) (2,289) (2,426) (2,751) (2,965) (3,183) (3,434) Total production overhead 45 62 225 (7) (248) (352) (415)
Pro Forma – Income Statement in 000s (2/2) Actual Forecast Forecast Forecast Forecast Forecast Forecast 2014 2015 2016 2017 2018 2019 2020 General and administrative expenses: Administrative wages 620 670 839 953 1,046 1,133 1,197 Advertising and marketing 32 32 212 227 93 102 113 Office costs 121 154 168 172 175 178 181 Travel 157 160 71 73 74 76 77 Vehicle expense 70 72 73 75 76 78 79 Total general and admin. exp. 1,000 1,088 1,364 1,500 1,464 1,566 1,646 Bonus expense 17 17 17 18 18 18 19 Depreciation 33 29 55 69 44 31 21 Interest expense 73 53 47 42 37 31 26 Total other expenses 123 99 120 128 99 80 66 Total expense before OH alloc 1,168 1,248 1,709 1,621 1,315 1,294 1,298 Pre-tax income 740 441 733 1,094 1,806 1,798 1,841 Tax (25%) 185 110 183 274 452 450 460 Net income $ 555 $ 331 $ 550 $ 821 $ 1,355 $ 1,349 $ 1,380 Profit margin 6.55% 3.91% 4.96% 6.35% 9.94% 9.47% 9.00%
TanksRus Manufacturing Inc. - CMA, CPA Board Report
TanksRus Manufacturing Inc. - CMA, CPA Board Report
TanksRus Manufacturing Inc. - CMA, CPA Board Report

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TanksRus Manufacturing Inc. - CMA, CPA Board Report

  • 1.
  • 2. Table of Contents • Current situation of TRUMike H • Alternative AnalysisEvan • RecommendationRichard • Financial ForecastMike L • Implementation PlanSenay • Operational ImprovementsKaylan Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 3. Current Situational Analysis Mike Hale Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 4. Financing Available Stagnant sales forecasted for next 5 years Poor operating results expected Major Issue Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 5. Financing AvailableSolving Major Issue Provide Diversification Improved Operating Results Improve Profitability Improve Sales Current: Poor results expected Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 6. Financing AvailableImplied Mission Statement Key Points: Metal tank manufacturer High quality, innovative production Oil and agricultural markets Canada and Northern US Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 7. Financing AvailableGoals Net Income After Tax ROI Harding Retains Voting Control • 2017: $800,000 • 2018: $900,000 • 2019: $1,000,000 • 10% required for Capital Projects • Implemented by January 2016 Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 8. Financing AvailableProduction Capacity Constraints Main Facility: 10,000 square feet Second Facility: 15,000 square feet Total: 25,000 square feet Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 9. Financing AvailableInternal Scan - Strengths High Quality Production Good relationship with farm organizations Innovative Culture Experienced Senior Management and staff Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 10. Financing AvailableInternal Scan – Weaknesses Facilities at production capacity + low yard storage capacity Low production employee morale – may join union Inefficiencies: operate multiple sites Tired sales staff and high travel costs Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 11. Financing AvailableExternal Environmental Scan High demand for metal tanks in Alberta – 25.5% of oil industry establishment Canada: one of the largest crop producers in the world Industry revenue is expected to increase at an annualized 2.4% to 2020 Saskatchewan farmers expect profitability to grow Opportunities Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 12. Financing AvailableExternal Environmental Scan Uncertainty in Alberta market from political changes Declining oil prices restrict oil market demand Harsh winters/droughts restrict agricultural demand Shortage of welders in Alberta and Saskatchewan Threats Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 13. Financing AvailableFunds Available Harding $500,000 Toth $300,000 Cash $720,000 Total $1,520,000 Additional Loan for Get Tanked $4,500,000 Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 14. Strong Internal Staff Reduce Production Inefficiencies Diversity Opportunities Available Remain Cautious of Threats Financing AvailableKey Situational Points Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 15. Financing AvailableStrategic Options Available Get Tanked Acquisition Hopper Bottom Cones Salt Silos Metal Recycling Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 16. Financing AvailableOther Options Balgonie Plant Edmonton Sales Office Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 17. Financing AvailableOptions for Further Improvements Hire an HR Manager Introduce Apprenticeship Program Implement ERP Program Improve Bonus Structure Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 18. Strategic Alternative Analysis Evan Clare Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 19. o Leverages relations with farm organizations o High demand for metal tanks in Alberta o Solves weakness of production/storage space o Contract does not expire until 2025 Get Tanked - Pros Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 20. Get Tanked - Cons o Threat: GT production employees unionized o Inefficiencies due to additional site o Fails to diversify product line o GT tanks not double walled: do not fit mission Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 21. Hopper Bottom Cones – Pros o Leverages relations with farm organizations o Canada: 5% of world wheat production o Crop production revenue climbing 1.5%/yr o Diversifies product offerings Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 22. Hopper Bottom Cones - Cons o Not within production capacity o TRU has no experience in HBC market o Winter/drought threaten agricultural demand o Shortage of welders Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 23. Salt Silos - Pros • Diversifies product offerings • Diversifies customers and opens new markets • Production similar to Metal Tanks • Harsh winters increase demand Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 24. Salt Silos - Cons • Not within production capacity • Additional welders required for production • TRU inexperienced in sale of salt silos • Original contract is short term – 3 years Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 25. Metal Recycling - Pros • Diversifies revenues • Steel demand to increase faster than supply • Shows TRU’s commitment to the environment • TRU profit on own scrap metal Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 26. Metal Recycling - Cons • TRU has no experience in metal recycling • Unfavourable joint venture • Risk: No prior relationship with MSAB • Loan is not repayable for foreseeable future Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 27. Balgonie Plant - Pros o Resolves production capacity constraint o Eliminates weakness of limited storage space o Mitigates multiple site inefficiencies o Good access to highway and nearby amenities Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 28. Balgonie Plant - Cons o Disruption in 2015 production o Remote location o Additional freight costs for materials and supplies o Possibility of employees not willing to commute o Potential for decreased employee morale Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 29. Edmonton Sales Office - Pros o Less travel: improved morale, reduced costs o Entry into Alberta market o Sales growth with “head-on” competition o Diversifies sales by region Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 30. Edmonton Sale Office - Cons o Alberta industry declined in 2012 o Highly competitive Alberta market o Recent decline in oil prices o Political uncertainty in Alberta Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 31. Goal Analysis & Recommendation Richard Vasquez Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 32. Decision Matrix – Strategic (in 000’s) NI Goal Contribution Project Cost ROI 10% (10 Years) Sustained Growth Within Capacity Recommend Get Tanked $3,106 Hopper Bottom Cones $375 Salt Silos $424 Metal Recycling $81 Balgonie Plant $544 Edmonton Sales Office $649 Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 33. 2017 – 2019 Net Income - 500 1,000 1,500 2,000 2,500 3,000 3,500 Edm Office Balgonie Metal Recycling Salt Silos HBC Get Tanked 2017 2018 2019 Get Tanked = Highest Metal Recycling = Lowest Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 34. Decision Matrix – Strategic (in 000’s) NI Goal Contribution Project Cost ROI 10% (10 Years) Sustained Growth Within Capacity Recommend Get Tanked $3,106 $5,476 Hopper Bottom Cones $375 $600 Salt Silos $424 $398 Metal Recycling $81 $218 Balgonie Plant $544 $1,086 Edmonton Sales Office $649 $10 Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 35. Initial Costs of Alternatives $5,000,000 $605,000 $398,000 $218,000 $1,019,300 $10,000 Get Tanked HBC Salt Silos Metal Recycling Balgonie Edm Office $1.52 Million available for other alternatives $6.02 Million available for Get Tanked Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 36. Decision Matrix – Strategic (in 000’s) NI Goal Contribution Project Cost ROI 10% (10 Years) Sustained Growth Within Capacity Recommend Get Tanked $3,106 $5,476 Yes Hopper Bottom Cones $375 $600 Yes Salt Silos $424 $398 Yes Metal Recycling $81 $218 Yes Balgonie Plant $544 $1,086 Yes Edmonton Sales Office $649 $10 Yes Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 37. 10% ROI Goal 27% 103% 207% 42% 138% 10% goal 0% 50% 100% 150% 200% 250% Get Tanked Hopper Bottom Cones Salt Silos Metal Recycling Balgonie Get Tanked = Lowest Salt Silos = Highest ROI After 10 Years Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 38. Decision Matrix – Strategic (in 000’s) NI Goal Contribution Project Cost ROI 10% (10 Years) Sustained Growth Within Capacity Recommend Get Tanked $3,106 $5,476 Yes No Hopper Bottom Cones $375 $600 Yes No Salt Silos $424 $398 Yes Yes Metal Recycling $81 $218 Yes Yes Balgonie Plant $544 $1,086 Yes Yes Edmonton Sales Office $649 $10 Yes Yes Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 39. Sustained Net Income Growth 2020 2021 2022 2023 2024 2025 Get Tanked -8% -10% -18% -17% -23% -32% Hopper Bottom Cones 4% 1% -1% -3% -5% -6% Salt Silos 21% 25% 11% 9% 8% 7% Metal Recycling 8% 12% 10% 3% 3% 3% Balgonie Plant 8% 18% 4% 4% 4% 3% Edmonton Sales Office 22% 6% 6% 6% 6% 6% Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 40. Decision Matrix – Strategic (in 000’s) NI Goal Contribution Project Cost ROI 10% (10 Years) Sustained Growth Within Capacity Recommend Get Tanked $3,106 $5,476 Yes No Increases Hopper Bottom Cones $375 $600 Yes No Yes Salt Silos $424 $398 Yes Yes No Metal Recycling $81 $218 Yes Yes No Balgonie Plant $544 $1,086 Yes Yes Increases Edmonton Sales Office $649 $10 Yes Yes Yes Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 41. (in 000’s) NI Goal Contribution Project Cost ROI 10% (10 Years) Sustained Growth Within Capacity Recommend Get Tanked $3,106 $5,476 Yes No Increases Hopper Bottom Cones $375 $600 Yes No Yes Salt Silos $424 $398 Yes Yes No Metal Recycling $81 $218 Yes Yes No Balgonie Plant $544 $1,086 Yes Yes Increases Edmonton Sales Office $649 $10 Yes Yes Yes (in 000’s) NI Goal Contribution Project Cost ROI 10% (10 Years) Sustained Growth Within Capacity Recommend Get Tanked $3,106 $5,476 Yes No Increases Hopper Bottom Cones $375 $600 Yes No Yes Salt Silos $424 $398 Yes Yes YES Metal Recycling $81 $218 Yes Yes YES Balgonie Plant $544 $1,086 Yes Yes Increases Edmonton Sales Office $649 $10 Yes Yes Yes Decision Matrix – Strategic Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 42. Recommendation Summary (in 000’s) Salt Silos Balgonie Plant Edmonton Sales Office Total 2017 NI Contribution $228 $142 $55 $425 2018 NI Contribution $135 $191 $251 $577 2019 NI Contribution $61 $211 $342 $614 Project Cost $398 $1,086 $10 $1,494 ROI 10% (10 Years) Yes Yes Yes Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 43. Within Financing Available Salt Silos Balgonie Edm Office $1.49 Million $1.52 Million Cash at April 30, 2015 Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 44. Recommendation Summary (in 000’s) Salt Silos Balgonie Plant Edmonton Sales Office Total 2017 NI Contribution $228 $142 $55 $425 2018 NI Contribution $135 $191 $251 $577 2019 NI Contribution $61 $211 $342 $614 Project Cost $398 $1,086 $10 $1,494 ROI 10% (10 Years) Yes Yes Yes Diversification Increased Capacity Long Term Growth Harding in Control Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 45. Financial Analysis Mike Lakomy Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 46. Projected Income Statement Actual Forecast Forecast Forecast Forecast Forecast 2014 2015 2016 2017 2018 2019 Total Revenues $8,510 $ 8,512 $ 11,152 $ 12,993 $ 13,709 $ 14,327 Total COGS 6,603 6,823 8,710 10,278 10,588 11,234 Gross margin 1,907 1,690 2,442 2,715 3,122 3,093 Total production OH 45 62 225 (7) (248) (352) Total G & A 1,000 1,088 1,364 1,500 1,464 1,566 Total other expenses 123 99 120 128 99 80 Net income $ 555 $ 331 $ 550 $ 821 $ 1,355 $ 1,349 Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Figures in 000s
  • 47. Revenue Growth $- $2.0 $4.0 $6.0 $8.0 $10.0 $12.0 $14.0 $16.0 2014 2015 (forecasted) 2016 (forecasted) 2017 (forecasted) 2018 (forecasted) 2019 (forecasted) Total Revenue (Millions $) 0% 31% 17% 6% 5% Compound Annual Growth Rate 2014 – 2019: 11% Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 48. Profitability Growth $- $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 $1,400,000 $1,600,000 2014 Actual 2015 Forecast 2016 Forecast 2017 Forecast 2018 Forecast 2019 Forecast Net Income per Year Compound Annual Growth Rate 2014 – 2019: 19% Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 49. 2017-2019 Net Income Goals $21K $455K $349K Above Goals: Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements $800 $900 $1,000 $821 $1,355 $1,349 2017 2018 2019 Goal ForecastFigures in 000s
  • 50. Increased Production Capacity 25,000 32,500 - 27,500 Current Recommendation Production capacity required Excess Capacity 25,000 total 60,000 total Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 51. Increased Yard Space Space with Recommendation: 10 Acres Current Space: 1.5 Acres 6.7 times more yard space Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 52. Diversification 35% 65% 2014 Sales Mix 43% 44% 13% 2018 Sales Mix AB Metal Tank Sales Other Metal Tank Sales Salt Silo Sales Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements 5.5M 2.9M 6.1M 5.8M 1.7M
  • 53. Improved Results (in 000s) Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements $8,510 $8,512 $11,152 $12,993 $13,709 $14,327 $555 $331 $550 $821 $1,355 $1,349 2014 2015 (forecasted) 2016 (forecasted) 2017 (forecasted) 2018 (forecasted) 2019 (forecasted) Revenue Net Income
  • 54. Mitigating Cons & Implementation Senay Yemane Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 55. Mitigating Salt Silos Short contract allows TRU to showcase it’s high quality manufacturing to new customers Salt Silos production doesn’t differ greatly from Metal Tanks Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 56. Mitigating Balgonie Financial incentives to drive to Balgonie Production plan to transition equipment efficiently Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 57. Mitigating Edm Sales Office Changing AB political environment increase’s need to capture demand Not opening the Edmonton sales office will result in flat sales Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 58. Financing AvailableObtain Funding $75,000 Share capital RE $1.536 Million Cash $500,000 Mitch Harding retains 87.56% ownership Total Equity - $2,411,197 Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements $300,00 Share Capital Greg Toth 12.44% ownership
  • 59. Implementing Salt Silos Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Task Responsibility Construct and submit a competitive bid Greg Toth/Raj Patel Purchase + Install SS equipment in Balgonie Greg Toth/Raj Patel Hire production employees to faciliate SS HR Manager Establish distribution network to Manitoba Greg Toth
  • 60. Implementing Salt Silos Q4 - 2015 Q1 - 2016Q3 - 2015 Construct and Submit Bid Purchase + Install SS in Balgonie Hire SS Production Staff Establish Distribution Network to Manitoba Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 61. Implementing Balgonie Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Task Responsibility Negotiate fair price for plant Greg Toth/Raj Patel Initiate upgrades to building Greg Toth/Raj Patel Inform employees about financial incentives HR Manager Formulate/execute plan for equipment transfer Raj Patel/ Sash Cossacks/Alex Jiroux Inform business partners – location change Cassandra Wall/Raj Patel
  • 62. Implementing Balgonie Q4 - 2015 Q1 - 2016Q3 - 2015 Negotiate Price for Plant Initiate upgrades to the building Inform Employees about financial incentives Inform business partners - location change Formulate plan to transfer equipment Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 63. Implementing EDM Sales Office Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Task Responsibility Secure and set up lease site Cassandra Wall/Greg Toth Offer severance/moving allowances HR Manager/Cassandra Wall Inform employees of new Edm sales office HR Manager Hire sales consultant replacement HR Manager/Cassandra Wall
  • 64. Implementing Edm Sales Office Q4 - 2015 Q1 - 2016Q3 - 2015 Secure and set a new site Offer severance/moving allowance Hire new sales consultants Inform employee of new office Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 65. Operational Improvements Kaylan Pepin Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 66. Operational Improvements Hire and HR Manager Introduce Apprenticeship Program Implement ERP Program Improve Bonus Structure Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 67. President General Manager HR Manager Administration Staff Sales Manager Sales Staff Production Manager Small Tank Plant Supervisor Production Staff Large Tank Plant Supervisor Production Staff Controller Hire Human Resources Manager Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 68. Hire Human Resources Manager Benefits: Improve employee relations Lead community involvement initiatives. Control its hiring processes and policies Conduct a hiring/incentives review, and employee’s incentives will be standardized Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 69. Hire Human Resources Manager Resolves: Lack of standard hiring process Currently employee incentives vary Controller unaware employee is hired until time card received. Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 70. Introduce Apprenticeship Program Benefits Revenue generated by apprentice exceeds total training costs The net benefit of an apprentice in training increases each year Increased loyalty to the company Assist in recruiting workers, particularly welders which mitigates a weakness of a shortage of welders. Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 71. Introduce Apprenticeship Program Resolves Risk of not attracting employees. Employees have stated they would not consider unionization Negative effect on product quality. Higher turnover rates than industry averages. Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 72. Implement New ERP System Benefits Accounting Invoicing Reporting Shop control CRM Supply chain management Scheduling Inventory Production planning Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 73. Implement New ERP System Resolves No integration between costing and accounting High amount of manual entries causing errors Poor at tracking of inventory levels resulting in inefficiencies Difficulty tracking customer sales data Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 74. Improve Bonus Structures Solution Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Department and individual goals Year-end bonus should be implemented Balanced Score Card Current Alternative Recommendation Implementation Financial Analysis Operational Improvements
  • 75. Improve Bonus Structures Resolves Lack of bonuses may negatively affect morale. Quality of work may suffer with no reward tied to performance Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements
  • 76. Conclusion Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Current Situation Alternative Analysis Recommendation Implementation Financial Analysis Operational Improvements Provide Diversification Improved Operating Results Improve Profitability Improve Sales Current: Poor results expected
  • 78. Revised Mission TanksRus Manufacturing Inc. (TRU) is a privately owned, Balgonie, Saskatchewan based manufacturer and distributor of standard and customized above ground, steel storage tanks used mainly for storing flammable liquids, and storage silos for road maintenance salts. Our high-quality, innovative small refueling, environmentally friendly, Transport Canada-approved tanks, and salt silos guarantees a solution that fits the needs of customers in the oil and agriculture, and road maintenance industries in Canada and the northern United States.
  • 79. Revised Vision TRU strives to be the premiere provider of high quality metal tanks and salt silos to the oil and agricultural, and road maintenance industries in Canada and northern United States.
  • 80. Experiencing poor quality welding requiring high rework • Impact: • Up to 40 weld deficiencies - negatively affects production. • 10 weld deficiencies per tank average. • No tracking system available to track which welders are responsible.
  • 81. Experiencing poor quality welding requiring high rework • Solution: • Implementing the apprenticeship program will result in higher skilled welders reducing the amount of deficient welds. • Introducing bonuses tied to the BSC will motivate welders to improve quality and efficiencies by incentivizing high quality work along with other factors. • The new ERP system will be configured to allow TRU to track employee labour, and instill accountability in production processes.
  • 82. Lawsuit pending from past customer • Impact: • Potential financial impact. • Reputational risk from possible negative media.
  • 83. Lawsuit pending from past customer • Obtain proper legal counsel for this matter. • TRU must consider the customer’s reputation is also at stake since they did not use the equipment properly, and the warranty is expired. • Keep open communication lines with the media. It’s important to assess the customer’s value to TRU and whether they will remain a client. • The customer’s willingness to sue rather than seek resolution indicates an out-of-court resolution is unlikely. • TRU should inform the client of their ability counter sue with a warning of defamation charges if the media is contacted. Offer to repair the tank this time as a compromise. • To avoid this situation in the future, a warranty contract should be included with sales and must be signed before shipment.
  • 84. Temporary Foreign Worker Program •Effective April 30, 2015, Employment and Social Development Canada administered new hiring approach for TFWs •Based on median hourly wage rather than need for skill • Low-wage positions capped at 20% in 2015; 10% in July 2016 Limiting • Worker must apply for work permit and successfully pass border inspection • Labour Market Impact Assessment must first be completed Time Consuming • Non-refundable $1000 fee per each employee • Responsible for round-trip transportation, housing, workplace safety, paying for private health insurance, and employment contract Expensive
  • 85. Experiencing long AR collection period Impact: • Some customers are slow to pay, putting a strain on cash flows. • Solution: Need to implement an AR policy with limits of 30 days. Each customer will be contacted by their sales manager and explained the change as well as given proper adjusting time. Interest should be added to receivables outstanding after 90 days. The controller should prepare a monthly report on payment statuses and increase customer contact.
  • 86. Tracking community involvement • TRU should create a volunteer community relations committee to assist with tracking fundraising, volunteering and working with disadvantaged groups. • Quarterly and annual reports will be provided to the HR Manager who will head the committee and garner company interest to attend events. • Corporate social responsibility reports will be created by the HR Manager and provided to Mitch Harding. • An overall fact sheet will summarize TRU’s impact on the community which will be available on TRU’s website.
  • 87. Third Party Cradles – Make or Buy Decision Purchase Cradles Cost Savings – In $ and Floor Space ($65/200 crates) (500 Sq Ft.) Increases goodwill by supporting employment for disadvantaged groups
  • 88. Cradle Purchase Decision Appendix 15: Quantitative Analysis for Third Party Cradles: Note: 1) Comparison assuming one order at 200 crates. 2) 1 crate takes 0.2 hours to make. 3) 40 hours required to make 200 crates. Buy Crates: Make Crates: 200 crates @ $8.45 $ 1,690 Material Costs ($3 * 200) $ 600 Delivery Charge $ 25 Direct Labour (40 hours * $26.5/hr) $ 1,060 Total Cost $ 1,715 Direct proc supplies (20% of Materials) $ 120 Total Cost $ 1,780 Savings using third party provider for every 200 crates: $ 65
  • 89. Single supplier for sheet metal • Impact: • Recent shipments have been delayed, causing late production. • Solution: Arrange to have backup suppliers to meet emergency orders ensuring sheet steel is always available. A list of backup suppliers has been compiled in the event the main supplier cannot fulfill an order: – Smith Steel – Local Saskatchewan supplier – Russel Metals – Canadian supplier • TRU should set meetings with Raj Patel for Smith Steel and Russel Metals to discuss pricing and the companies’ ability to meet emergency deliveries. The ability to win some of TRU’s business should be discussed.
  • 90. Website Improvements • Impact: • Management unable to determine the effectiveness of the web site on sales. • An ineffective website does not provide TRU awareness. • Solution: Sandra Harding will retain her duties and will work with the external IT consultant to provide website support along with supporting the ERP. Both parties will implement means to track site visits, number of sales resulting from site visits, and provide customers with tracking status on the website.
  • 91. TRU has limited storage space for completed goods Solution: Solved with purchasing the plant in Balgonie.
  • 92. Production employees are considering unionization: Impact: • Unionization will bring higher wage costs. • Solution: Production workers have indicated that adding an apprenticeship program will prevent unionization attempts. It is recommended for TRU to implement apprenticeship training as it will increase the happiness of TRU employees, improve production quality, and prevent unionization.
  • 93. Production Supervisor ordering inadequately to earn bonus • Impact: • Ethical issue that reduces production quality. • Bonuses are not rewarding proper behavior. • Solution: The Production Supervisor will meet with Raj Patel to discuss the severity of ordering inadequate material to earn a bonus. TRU’s HR manager will create a code of business conduct to promote future ethical conduct. It will promote the values of TRU and create accountability by outlining direct consequences. An ethics seminar should be held for all staff to ensure that all employees are aware of expectations.
  • 94. Implied Mission TanksRus Manufacturing Inc. (TRU) is a privately owned, Regina, Saskatchewan based manufacturer and distributor of standard and customized above ground, steel storage tanks. Our high-quality, innovative small refueling, environmentally friendly, and Transport Canada-approved tanks guarantees a solution that fits customer’s needs in the oil and agriculture industries in Canada and northern US.
  • 95. Implied Vision TRU strives to be the premiere provider of high quality metal tanks to the oil and agricultural industries in Canada and northern US.
  • 96. Strengths (1/2) •All tank models are approved by Transport Canada. •Provide a one year warranty to cover leaks in accordance with standard industry practice. •Most of the sales staff are experienced. •Enjoys a competitive advantage by improving technologies in accordance with trends and innovations in the tank industry. •Able to supply customers' special orders on an ad hoc basis in an expedient manner. •Operate a strong distribution channel. •TRU holds no liability for accidents that occur during transportation of finished goods. •Customers appreciate TRU's shipping option because it is convenient and cost effective. •Management and office staff have been with the company for many years.
  • 97. Strengths (2/2) •Senior management team has many years of experience in the industry. •All TRU tanks are high quality and double walled which assists in preventing leaks. •TRU has been competitive and strong in its pricing strategies, with moderate sales growth. •Enjoy a good, long-term relationship with farm organizations. •Connected to the community through fundraising, volunteering and working with disadvantaged groups. •The cost of the current lease is below market rate. •Each weld on every tank is tested, resulting in high quality tanks. •Produce environmentally friendly tanks. •Operate interactive web site that is up to date and user friendly. •All sites are in close proximity of each other. •Production employees are non-unionized.
  • 98. Weaknesses (1/2) •There is no standard hiring process or standard incentive offering to employees. •Current dispute with previous customer experiencing leaking tank that may seek legal action. •Some sales staff are tired of extensive travel. •Welder morale is low and production employees have discussed joining a union to enable them higher wages. •Operate multiple sites, which can lead to inefficiencies. •Travel costs are fairly high. •Higher turnover rates than industry averages among production employees - hourly wages are below market levels. •Current technology does not allow extraction of pertinent sales information from TRU's website. •No integration between costing system and accounting software. •Use one supplier for sheet steel.
  • 99. Weaknesses (2/2) •Current performance measurement and bonus system is inadequate. •Experience up to 40 deficient welds per tank recently surpassing industry averages of 10 welds per tank. •There are no performance measures for quality. •Improper conduct by Production Supervisor as improper material was ordered to assist in achieving targets to earn bonus. •TRU has a shortage of employees, mostly welders. •Long collection period of 45-60 days. •Current facilities are at production capacity. •TRU has limited storage space for completed goods. •Stagnant sales growth in the next 5 years.
  • 100. Opportunities (1/2) •World's need for oil will increase by 30% before 2040, increasing demand for steel tanks. •Alberta accounts for 50% of Canada's oil production and production is expected to double by 2020. •Saskatchewan farmers expect their profitability to grow, therefore increasing expenditures. •Oil companies prefer to use local suppliers. •More steel is recycled annually than any other substance in North America. •Introducing automation to a plant can reduce bottlenecks and increase productivity. •Saskatchewan and Alberta have stable economies and a growing population with a strong future outlook.
  • 101. Opportunities (2/2) •The agricultural sector is the largest single user of metal tanks at 35.4% of the market.18 •Climbing crop, oil, industrial and chemical production will increase demand - in the five years to 2020, industry revenue is expected to increase at an annualized 2.4% to $1.3 billion.18 •Canada is one of the world's largest crop producers, accounting for 5.3% of global wheat production in 2014.18 •Canada's proximity to the United States and NAFTA has helped manufacturers to increase exports, which are expected to climb at 3.0% in 2015.18 •Crop production revenue is forecasted to climb at an annualized 1.5% in the five years to 2020, increasing demand for storage.18 •Increasing demand for industry products is projected to increase profit margins from 6.5% in 2015 to 7.4% in 2020.18 •There is substantial demand for metal tanks in Alberta as it contains 25.5% of oil industry establishment.18
  • 102. Threats (1/2) •Canada exports 99% of its oil to the US, but the US is expected to become energy self- sufficient by 2035. •Environmental concerns about transporting oil may limit the need for storage tanks. •The Canadian agriculture industry is threatened by increased competition from emerging economies. •Skilled welders are in great demand and short supply in Alberta and Saskatchewan. •The industry is experiencing an increasing level of competition.18 •The oil industry is cyclical and subject to market trends. •Recent political changes in Alberta have caused uncertainty with current policies which creates risk.
  • 103. Threats (2/2) •Large volume oil producers often take 60 days or more to settle their accounts. •If the recent decline in the world price of oil continues over the next five years, Canadian oil production may decline, reducing demand for metal tanks.18 •High competition in Saskatchewan with over 30 metal tank manufacturers. •Worldwide demand for steel is expected to increase more rapidly than supply, increasing prices at an expected annualized 1.6% to 2020.18 •Demand from crop production is expected to decline in 2015.18 •Harsh winters or droughts can reduce agricultural production, dropping demand for storage tanks.18 •There is increased competition from plastic and composite material tank manufacturers.18
  • 104. Industry KSF Steel supply: Access to a good steel supply is important. Technology: Utilizing up to date technology such as advanced robotics is key because it allows for reduced cost. Pricing: Important as there is little to differentiate steel tank manufacturers from one another. Exceeding customer expectations: Develop long-term relationships with customers by providing value adding services. Diverse range of clients: Diversifying customers increases revenue performance. Complying with product standards: Must comply with product and government regulations or risk losing customers.1 Highly trained workforce: Requires experienced, certified metalworkers and machinery operators. Strong local presence: Can be essential in gaining contracts since manufacturing often takes place near downstream markets.2
  • 105. Key Stakeholder Preferences (1/2) Mitch Harding (President): • Prefers to keep a controlling interest of TRU. • Prefers not to outsource production overseas. • A move to small town in Saskatchewan will show TRU is committed to their roots. • Supports metal recycling. • In favor of safeguarding the environment. Greg Toth (General Manager): • Supports having a stronger presence in Alberta. • Prefers to purchase Get Tanked. • Does not support purchasing a plant in a small town. Tina Boyce (Controller): • Wants a payroll system implemented.
  • 106. Key Stakeholder Preferences (2/2) Cassandra Wall (Sales Manager): • Prefers growing in Alberta by opening a sales office. • Against buying GT. • Prefers producing hopper bottom cones. Raj Patel (Production Manager): • Prefers to manufacture salt silos. • Encourages hiring of foreign workers. • Prefers to purchase property in Balgonie. Sasha Cossacks (Small Tank Plant Supervisor): • Prefers recycling scrap metal for profit. • Prefers manufacturing hopper bottom cones. Alex Jiroux (Large Tank Plant Supervisor): • Prefers producing salt silos. • Prefers plant expansion in Balgonie. • In favor of acquiring GT. • Prefers to head the GT project.
  • 107. Financial Ratios and Benchmark TanksRus Manufacturing Inc AG Growth International19 Tank Rentals AB Co. Prairie Tank Tanks Steel Industry Avg20 Name Calculation 2014 2013 2012 2014 2013 2012 2014 2014 2014 2014 2014 Current Ratio CA/CL 1.84 1.79 1.71 1.70 1.32 4.27 1.62 2.02 1.95 1.42 1.75 Quick Ratio (Cash+AR)/CL 1.31 0.97 0.05 0.99 0.97 1.98 - - - - 0.90 Debt-to-equity D/E 1.34 1.54 1.89 1.13 1.47 0.95 0.82 1.01 1.22 2.02 1.30 Long term D to E LTD/E 0.51 0.65 0.89 0.59 0.59 0.81 - - - - 0.54 Times interest earned (pre-tax inc+int)/int 11.15 10.43 2.70 4.18 3.47 2.91 20.80 12.20 10.10 3.20 10.20 Return on assets NI/Avg Assets 15.22% 14.42% 2.71% 0.59% 5.28% 4.49% - - - - - Inventory Turnover COGS/Avg Inventory 8.80 4.49 3.76 4.30 4.22 3.56 14.20 9.30 9.80 6.80 7.10 Days Sales Out. Avg AR/(Rev/365) 43.23 28.24 28.67 66.29 56.49 58.96 - - - - - Receivables Turnover Rev/avg AR 8.44 12.93 12.73 5.51 6.46 6.19 12.20 8.80 10.20 7.61 9.40 Return on Equity NI/Avg Equity 36.97% 38.82% 7.48% 2.02% 11.68% 8.77% - - - - - Gross profit margin Gross margin/tot rev 22.41% 21.25% 21.65% 30.89% 31.30% 30.27% 98.20% 20.50% 19.40% 17.83% 33.00% Pre-tax Profit Margin Pre-tax inc/tot Rev 8.69% 8.77% 2.09% 9.05% 10.27% 7.96% - - - - 6.50% Profit Margin NI/Total revenue 6.52% 6.58% 1.57% 1.02% 6.33% 5.47% 8.41% 9.20% 5.92% 3.21% -
  • 108. Cash Flow to April 30, 2015 Note: 120 days passed in 2015 out of 365 days. Income statement assumed to be earned evenly across 2015, therefore 120 days out of 365 days of financials accounted for in cash flow projection. Start Cash at Dec .31, 2014 $ 667,403 Assumption Collections from 2015 sales $ 1,786,062 43 DSO, 120-43 days not collected=77 days of 2015 collection Collections from 2014 AR $ 1,090,147 43 DSO, therefore all AR collected from 2014 balance sheet Cash paid for direct labour and OH in 2015 $ (1,095,657) All labour worked and OH in 2015 to April 30, 2015 is paid Cash paid for material for 2015 operations $ (835,512) 30 day terms: 90 days of material in 2015 payable Cash paid for 2014 year ending AP $ (620,500) 30 days terms: all 2014 AP is paid Freight paid $ (18,794) 30 days payable for freight, 90 days of freight paid in 2015 Interest paid in 2015 to date $ (17,379) $52,862 of 2015 interest/(365/120 days) Principal paid in 2015 to date $ (27,567) ($5,338.33 x 4 months) + ($18,900/(365/120)) Unallocated production OH + depreciation $ 136,782 Add depreciation and unallocated OH deducted in cost of sales Government remittances (income tax, GST, etc) $ (90,108) Quarterly installments assumed for payments General and admin projected to April 30, 2015 $ (251,530) 30 days payable for costs realized to April 30, 2015. Ending Cash $ 723,348
  • 109. Base Forecast (000s) (1/3) Actual Forecast Forecast Forecast Forecast Forecast Forecast 2014 2015 2016 2017 2018 2019 2020 Revenue1 $ 8,466 $ 8,466 $ 8,890 $ 8,890 $ 9,334 $ 9,334 $ 9,334 Freight revenue2 $ 44 $ 46 $ 48 $ 51 $ 53 $ 56 $ 59 Total Revenues $ 8,510 $ 8,512 $ 8,938 $ 8,940 $ 9,387 $ 9,390 $ 9,393 Cost of goods sold3 $ 6,503 $ 6,721 $ 6,858 $ 6,982 $ 7,130 $ 7,260 $ 7,394 Freight out4 $ 100 $ 102 $ 104 $ 106 $ 108 $ 110 $ 112 Total cost of goods sold $ 6,603 $ 6,823 $ 6,961 $ 7,087 $ 7,238 $ 7,370 $ 7,506 Gross margin $ 1,907 $ 1,690 $ 1,977 $ 1,853 $ 2,150 $ 2,020 $ 1,887 Production overhead: Depreciation5 $ 410 $ 373 $ 285 $ 242 $ 212 $ 111 $ 71 Engineering Fees/ULC/ISO4 $ 37 $ 38 $ 39 $ 40 $ 40 $ 41 $ 42 Indirect plant wages and benefits4 $ 658 $ 672 $ 685 $ 699 $ 713 $ 727 $ 741 Processing supplies4 $ 361 $ 368 $ 375 $ 383 $ 391 $ 398 $ 406 Rework4 $ 52 $ 53 $ 54 $ 55 $ 57 $ 58 $ 59 Sale of scrap4 $ (11) $ (11) $ (11) $ (12) $ (12) $ (12) $ (12) Plant equipment costs4 $ 218 $ 222 $ 227 $ 231 $ 236 $ 241 $ 246 Building costs4 $ 527 $ 538 $ 549 $ 560 $ 571 $ 582 $ 594 Other production costs4 $ 78 $ 80 $ 81 $ 83 $ 85 $ 86 $ 88 Allocated overhead3 $ (2,286) $ (2,289) $ (2,305) $ (2,305) $ (2,326) $ (2,326) $ (2,326) Total production overhead $ 45 $ 43 $ (21) $ (24) $ (34) $ (93) $ (92)
  • 110. Base Forecast (000s) (2/3) Actual Forecast Forecast Forecast Forecast Forecast Forecast 2014 2015 2016 2017 2018 2019 2020 General and administrative expenses: Administrative wages and benefits, including contracts4 $ 620 $ 632 $ 645 $ 658 $ 671 $ 684 $ 698 Advertising and marketing4 $ 32 $ 32 $ 33 $ 34 $ 34 $ 35 $ 36 Office costs4 $ 121 $ 124 $ 126 $ 129 $ 131 $ 134 $ 137 Travel4 $ 157 $ 160 $ 163 $ 167 $ 170 $ 173 $ 177 Vehicle expense4 $ 70 $ 72 $ 73 $ 75 $ 76 $ 78 $ 79 Total general and admin. exp. $ 1,000 $ 1,020 $ 1,040 $ 1,061 $ 1,083 $ 1,104 $ 1,126 Bonus expense4 $ 17 $ 17 $ 17 $ 18 $ 18 $ 18 $ 19 Depreciation6 $ 33 $ 29 $ 24 $ 16 $ 8 $ 5 $ 4 Interest expense7 $ 73 $ 53 $ 47 $ 42 $ 37 $ 31 $ 26 Total other expenses $ 123 $ 99 $ 89 $ 76 $ 63 $ 55 $ 48 Total expense before overhead allocation $ 1,168 $ 1,162 $ 1,108 $ 1,114 $ 1,111 $ 1,066 $ 1,083 Pre-tax income $ 740 $ 528 $ 868 $ 739 $ 1,038 $ 954 $ 804 Tax (25%) $ 185 $ 132 $ 217 $ 185 $ 260 $ 238 $ 201 Net income $ 555 $ 396 $ 651 $ 555 $ 779 $ 715 $ 603
  • 111. Base Forecast (000s) (3/3) Notes: 1: Product selling prices increase 5% in 2016 and 5% in 2018. Sales amounts are equal to 2014 levels. 2: Freight revenue increases 5% annually. 3: Assumption that TRU experiences 2014 sales and product mix in future years. 2016 and 2017 OH rate is $59.65/labour hr and $60.20/labour hr in 2018, 2019 and 2020. Labour rate increases by $0.50 annually. 4: Increase annually with rate of inflation of 2% since production is assumed to remain at 2014 levels. 5: Production depreciation calculated using declining balance method+1/2 year rule. Future capital asset additions are depreciated based on information in Schedule 1 in TRU's 2014 financial statements. 6: Depreciation calculated using declining method with associated CCA rates and planned additions occur. 7: Based on LT debt carrying values and interest rates in Schedule 2 of TRU's 2014 financial statements.
  • 112. Get Tanked Inc Stmt (1/2) GT Inc Stmt Forecast: 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Total contract sales1 5,468,500 6,257,000 6,257,000 6,570,000 6,691,600 6,691,600 6,691,600 6,691,600 6,691,600 6,691,600 Total retail sales2 1,009,125 1,059,581 1,112,560 1,168,188 1,226,598 1,287,928 1,352,324 1,419,940 1,490,937 1,565,484 1000G COGS3 2,484,727 2,679,402 2,774,868 2,875,291 2,980,992 3,092,313 3,209,623 3,333,318 3,463,821 3,601,590 135G COGS3 1,624,370 1,892,976 1,938,841 1,986,006 2,115,891 2,167,772 2,221,131 2,276,013 2,332,464 2,390,530 Gross margin 2,368,528 2,744,203 2,655,852 2,876,891 2,821,314 2,719,443 2,613,170 2,502,209 2,386,252 2,264,965 Plant wages4 338,130 344,893 351,790 358,826 427,003 435,543 444,254 453,139 462,202 471,446 Amortization5 390,000 348,000 243,600 170,520 119,364 83,555 58,488 40,942 28,659 20,062 Equip repairs/maint6 300,000 350,000 400,000 450,000 500,000 550,000 600,000 650,000 700,000 750,000 Line ch and proc supp7 205,834 209,950 214,149 218,432 222,801 227,257 231,802 236,438 241,167 245,990 Base property lease8 300,000 330,000 330,000 330,000 330,000 330,000 363,000 363,000 363,000 363,000 Lease occupancy9 108,243 125,000 127,500 130,050 132,651 135,304 150,000 153,000 156,060 159,181 Rework10 16,194 18,291 18,424 19,345 19,795 19,949 20,110 20,279 20,456 20,643 Allocated overhead11 (859,488) (931,099) (937,779) (944,793) (966,658) (974,391) (982,510) (991,036) (999,988) (1,009,387) Total production costs 798,914 795,035 747,684 732,381 784,957 807,217 885,144 925,762 971,557 1,020,935 Administrative wages12 375,000 192,500 198,275 204,223 210,350 216,660 223,160 229,855 236,751 243,853 Wages and comm.13 123,896 127,888 132,035 136,345 140,824 145,480 150,322 155,356 160,594 166,042 Amortization14 49,580 39,664 31,731 25,385 20,308 16,246 12,997 10,398 8,318 6,655 Other admin costs15 125,000 125,000 187,500 191,250 195,075 198,977 202,956 207,015 211,155 215,379 Total expenses 673,476 485,052 549,541 557,203 566,557 577,363 589,435 602,624 616,818 631,928 NI before tax and inter 896,139 1,464,116 1,358,626 1,587,307 1,469,801 1,334,862 1,138,591 973,823 797,878 612,102
  • 113. Get Tanked Inc Stmt (2/2) 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 NI before tax and inter. 896,139 1,464,116 1,358,626 1,587,307 1,469,801 1,334,862 1,138,591 973,823 797,878 612,102 Scenario 1: Fixed interest at 2.25%: Interest expense1 101,250 95,500 89,621 83,609 77,463 71,178 64,751 58,180 51,461 44,591 NI before tax 794,889 1,368,616 1,269,005 1,503,698 1,392,338 1,263,684 1,073,839 915,643 746,416 567,511 Income tax (25%) 198,722 342,154 317,251 375,925 348,085 315,921 268,460 228,911 186,604 141,878 Net income 596,166 1,026,462 951,754 1,127,774 1,044,254 947,763 805,380 686,732 559,812 425,633 Add back depreciation 439,580 387,664 275,331 195,905 139,672 99,801 71,485 51,340 36,977 26,716 Net cash flow 1,035,746 1,414,126 1,227,085 1,323,678 1,183,926 1,047,564 876,865 738,071 596,790 452,349 PV cash flow (10% dis) 941,588 1,168,699 921,927 904,090 735,125 591,323 449,970 344,316 253,097 174,400 Loan princ payment1 255,548 261,298 267,177 273,189 279,336 285,621 292,047 298,618 305,337 312,207 PV of principal 232,317 215,949 200,734 186,592 173,445 161,225 149,866 139,308 129,493 120,369 Scenario 2: Interest only payments for 5 years. Interest at 2.5%: Interest expense2 112,500 112,500 112,500 112,500 112,500 112,500 102,458 92,166 81,616 70,802 NI before tax 783,639 1,351,616 1,246,126 1,474,807 1,357,301 1,222,362 1,036,132 881,657 716,262 541,300 Income tax (25%) 195,910 337,904 311,531 368,702 339,325 305,590 259,033 220,414 179,065 135,325 Net income 587,729 1,013,712 934,594 1,106,106 1,017,976 916,771 777,099 661,243 537,196 405,975 Add back depreciation 439,580 387,664 275,331 195,905 139,672 99,801 71,485 51,340 36,977 26,716 Net cash flow 1,027,309 1,401,376 1,209,926 1,302,011 1,157,648 1,016,573 848,585 712,582 574,174 432,691 PV cash flow (10% dis) 933,917 1,158,162 909,035 889,291 718,808 573,829 435,458 332,425 243,506 166,821 Loan princ payment2 - - - - - 401,664 411,706 421,999 432,549 443,362 PV of principal - - - - - 226,729 211,270 196,866 183,443 170,935
  • 114. Get Tanked Financials and Goals 10 Year NPV: Disc rate 10%, CCA rate 20% for tax shield, tax rate 25% Goal analysis: Scenario 1 PV Scenario 2 PV Assump 1. 10% ROI required 25.65% - 28.11% Initial costs $ (5,000,000) $ (5,000,000) 2. NI goals: 2017 2018 2019 Equip purch mid '16 $ (476,190) $ (476,190) n=0.5 Base forecasted NI 554,529 778,859 715,134 Sum cash flows '16-'25 $ 6,484,535 $ 6,361,252 GT NI (2.25% interest) 1,026,462 951,754 1,127,774 Tax shield office equip $ 39,439 $ 39,439 i=$247.9K Total NI (2.25% int) 1,580,991 1,730,612 1,842,907 Tax shield plant equip. $ 268,466 $ 268,466 i=$1.5M GT NI (2.5% interest) 1,013,712 934,594 1,106,106 Tax shield new equip. $ 89,489 $ 89,489 i=$500K Total NI (2.5% interest) 1,568,241 1,713,453 1,821,239 Total NPV for 10 years $ 1,405,738 $ 1,282,455 Goal 800,000 900,000 1,000,000 ROI 28.11% 25.65% 3. Implement by 2016 Attainable Payback period 4 Years 153 Days 4 Years 176 Days Constraint analysis: 1. Plant at capacity Excess capacity at 31,250 sq feet
  • 115. HBC – No Sales Staff, AB wages 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Sales in units 250 263 276 276 276 276 276 276 276 276 Wholesale 18ft sales 560,480 602,045 645,048 657,949 671,108 684,530 698,221 712,185 726,429 740,957 Retail 18ft sales 468,750 498,688 529,177 534,469 539,813 545,211 550,664 556,170 561,732 567,349 Wholesale 21ft sales 249,750 268,515 287,931 293,689 299,563 305,554 311,665 317,899 324,257 330,742 Retail 21ft sales 212,500 223,210 234,113 236,454 238,819 241,207 243,619 246,055 248,516 251,001 Total sales 1,491,480 1,592,457 1,696,269 1,722,561 1,749,303 1,776,503 1,804,169 1,832,309 1,860,933 1,890,049 Note: 5% increase in sales in 2017 and 2018 with sales in units rounded to nearest whole number. Unit sales do not change from 2018 to 2025. Wholesale sales are 60% of sales, retail sales are 40% of sales. 18 ft cones are 75% of sales, 21 ft cones are 25% of sales, wholesale sales prices increase 2% annually, retail sales prices increase 1% annually. Total 18ft material cost 442,571 475,434 509,435 519,623 530,016 540,616 551,429 562,457 573,706 585,180 Total 18 ft labour cost 146,189 157,044 168,275 171,641 175,073 178,575 182,146 185,789 189,505 193,295 Total 21ft material cost 236,118 252,494 269,430 274,819 280,315 285,921 291,640 297,473 303,422 309,490 Total 21 ft labour cost 63,488 67,891 72,445 73,894 75,372 76,879 78,417 79,985 81,585 83,217 Total COGS 888,365 952,863 1,019,585 1,039,977 1,060,776 1,081,992 1,103,632 1,125,704 1,148,218 1,171,183 Total additional labour hrs 6,552.40 6,891.40 7,230.40 7,230.40 7,230.40 7,230.40 7,230.40 7,230.40 7,230.40 7,230.40 Gross margin 603,115 639,594 676,683 682,584 688,527 694,511 700,537 706,605 712,715 718,866 Note: Material cost per unit increases with inflation at 2%, conservative to use AB wage rates, labour rates increase annually with inflation at 2%.
  • 116. HBC – Sales Staff, AB wages 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Total 18ft sales1 1,175,000 1,249,875 1,326,130 1,339,391 1,352,785 1,366,313 1,379,976 1,393,776 1,407,714 1,421,791 Total 21ft sales1 527,000 558,025 589,618 595,514 601,469 607,484 613,559 619,694 625,891 632,150 Sales w/o sales staff 1,491,480 1,592,457 1,696,269 1,722,561 1,749,303 1,776,503 1,804,169 1,832,309 1,860,933 1,890,049 Incr. sales 210,520 215,443 219,479 212,344 204,951 197,294 189,366 181,161 172,672 163,892 Incr. expenses/(savings): Add'l sales staff salary2 72,000 73,440 74,909 76,407 77,935 79,494 81,084 82,705 84,359 86,047 Add'l retail comm3 51,038 54,300 57,623 58,199 58,781 59,369 59,963 60,562 61,168 61,780 Wholesale comm saving4 (16,205) (17,411) (18,660) (19,033) (19,413) (19,802) (20,198) (20,602) (21,014) (21,434) Additional profit before tax 103,687 105,114 105,607 96,771 87,649 78,233 68,518 58,495 48,158 37,499 *More profitable to hire 2 marketing staff, therefore it is recommended for TRU to hire 2 marketing staff for HBC. Notes: 1) Assuming all sales are retail sales atretail price, 1% sales price growth annually, assuming same sales in units calculated above. 2) Conservative to use AB rates, 2% salary growth per year. 2016 levels of 2 staff at $36,000 each/year. 3) 5% of sales with additional sales staff, less 5% of retail sales without sales staff. 4. 2% of wholesale sales without sales staff
  • 117. HBC– Low forecast (AB wages) 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Gross margin1 813,635 855,037 896,163 894,928 893,478 891,805 889,903 887,766 885,386 882,758 Plant workers+sales staff2 204,600 208,692 212,866 217,123 221,466 225,895 230,413 235,021 239,722 244,516 Sales commission3 85,100 90,395 95,787 96,745 97,713 98,690 99,677 100,674 101,680 102,697 Incremental OH4 275,201 295,228 315,945 322,264 328,710 335,284 341,989 348,829 355,806 362,922 Engineer, equip repair, maint5 7,000 7,140 7,283 7,428 7,577 7,729 7,883 8,041 8,202 8,366 Proc supplies/mark costs6 75,739 80,452 85,251 86,103 86,964 87,834 88,712 89,599 90,495 91,400 Staff training and survey 55,000 - - - - - - - - - Depreciation7 82,500 140,250 98,175 68,723 48,106 33,674 23,572 16,500 11,550 8,085 Profit before taxes 28,495 32,881 80,856 96,542 102,943 102,700 97,657 89,102 77,932 64,772 Income tax- 25% 7,124 8,220 20,214 24,135 25,736 25,675 24,414 22,275 19,483 16,193 Net income 21,371 24,661 60,642 72,406 77,207 77,025 73,243 66,826 58,449 48,579 Disc cash(add deprec+10% dis) 94,428 136,290 119,321 106,032 85,590 68,735 60,114 42,760 32,655 24,031
  • 118. HBC – High forecast (Sask wages) 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Profit before taxes - AB wages 28,495 32,881 80,856 96,542 102,943 102,700 97,657 89,102 77,932 64,772 COGS savings - Sask wages8 29,486 31,632 33,851 34,528 35,219 35,923 36,642 37,375 38,122 38,884 Plant worker (savings)9 10,200 10,404 10,612 10,824 11,041 11,262 11,487 11,717 11,951 12,190 Sales staff (savings)9 8,000 8,160 8,323 8,490 8,659 8,833 9,010 9,189 9,373 9,560 Incremental OH (savings)8 39,314 42,175 45,135 46,038 46,959 47,898 48,856 49,833 50,829 51,846 Profit before taxes 115,495 125,252 178,777 196,421 204,821 206,615 203,651 197,215 188,207 177,252 Income tax- 25% 28,874 31,313 44,694 49,105 51,205 51,654 50,913 49,304 47,052 44,313 Net income 86,621 93,939 134,083 147,316 153,616 154,961 152,738 147,911 141,155 132,939 Disc cash(add deprec+10% dis) 153,747 193,545 174,499 162,313 137,779 117,128 109,474 84,369 71,238 59,808
  • 119. HBC NPV and Goals Disc rate 10%, CCA rate 30% for tax shield, tax rate 25% Goal analysis: Low High 10 Year NPV Analysis: Low PV High PV Assum 1) 10% ROI required 57.89% 147.70% 3) Implement by '16 Capital cost (550,000) (550,000) 2) NI goals: 2017 2018 2019 Attainable Tax shield plant 98,438 98,438 i=550,000 High expected NI 648,468 912,942 862,450 PV of cash flows 769,957 1,263,899 Low expected NI 579,190 839,500 787,540 Total NPV for 10 years 318,395 812,337 Goal 800,000 900,000 1,000,000 ROI 57.89% 147.70% Constraint analysis: 1) Plant at capacity Required 8,000 additional sq ft Payback period 3 Y 316 D 2 Y 230 D
  • 120. Salt Silo – Bid Price Sales: High Low Medium Weighted 3 YR sales 6,075,000 5,300,000 5,850,000 Price/Unit Units 30 30 30 Price/unit 202,500 176,667 195,000 % prob 20% 20% 60% Prob*Price $ 40,500 $ 35,333 $ 117,000 192,833
  • 121. Salt Silo – High Bid Price High Contract I/S: 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Sales1 1,822,500 2,430,000 1,822,500 1,549,125 1,626,581 1,707,910 1,793,306 1,882,971 1,977,120 2,075,976 Cost of sales 1,421,550 1,895,400 1,421,550 1,208,318 1,268,733 1,332,170 1,398,779 1,468,717 1,542,153 1,619,261 Gross margin 400,950 534,600 400,950 340,808 357,848 375,740 394,527 414,254 434,966 456,715 Admin support2 48,000 48,960 49,939 50,938 51,957 52,996 54,056 55,137 56,240 57,364 Sales rep3 - - 36,000 64,451 66,205 68,017 69,890 71,826 73,827 75,897 Engineering fees4 145,800 60,750 45,563 77,456 81,329 85,396 89,665 94,149 98,856 103,799 Depreciation5 63,825 97,796 72,658 55,226 43,098 19,641 13,737 9,610 6,725 4,706 Total expenses 257,625 207,506 204,160 248,072 242,589 226,050 227,347 230,721 235,647 241,766 Operating income 143,325 327,094 196,790 92,736 115,259 149,691 167,180 183,532 199,319 214,949 Taxes (25%) 35,831 81,773 49,197 23,184 28,815 37,423 41,795 45,883 49,830 53,737 Net income 107,494 245,320 147,592 69,552 86,444 112,268 125,385 137,649 149,489 161,211 Add back deprec 63,825 97,796 72,658 55,226 43,098 19,641 13,737 9,610 6,725 4,706 Cash flow 171,319 343,117 220,251 124,778 129,542 131,909 139,121 147,259 156,214 165,918 Discounted CF 155,744 283,567 165,478 85,225 80,436 81,905 86,383 91,437 96,997 103,022
  • 122. Salt Silo – Most Likely Bid Price Weighted Con I/S: 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Sales1 1,735,500 2,314,000 1,735,500 1,475,175 1,548,934 1,626,380 1,707,699 1,793,084 1,882,739 1,976,876 Cost of sales 1,353,690 1,804,920 1,353,690 1,150,637 1,208,168 1,268,577 1,332,006 1,398,606 1,468,536 1,541,963 Gross margin 381,810 509,080 381,810 324,539 340,765 357,804 375,694 394,479 414,203 434,913 Admin support2 48,000 48,960 49,939 50,938 51,957 52,996 54,056 55,137 56,240 57,364 Sales rep3 - - 36,000 63,712 65,429 67,202 69,034 70,927 72,883 74,906 Engineering fees4 138,840 57,850 43,388 73,759 77,447 81,319 85,385 89,654 94,137 98,844 Depreciation5 63,825 97,796 72,658 55,226 43,098 19,641 13,737 9,610 6,725 4,706 Total expenses 250,665 204,606 201,985 243,635 237,930 221,158 222,211 225,328 229,984 235,820 Operating income 131,145 304,474 179,825 80,904 102,836 136,646 153,483 169,151 184,218 199,093 Taxes (25%) 32,786 76,118 44,956 20,226 25,709 34,161 38,371 42,288 46,055 49,773 Net income 98,359 228,355 134,869 60,678 77,127 102,484 115,112 126,863 138,164 149,319 Add back deprec 63,825 97,796 72,658 55,226 43,098 19,641 13,737 9,610 6,725 4,706 Cash flow 162,184 326,152 207,527 115,904 120,225 122,126 128,849 136,473 144,888 154,026 PV of CF (10%) 147,440 269,547 155,918 79,164 74,650 75,830 80,005 84,739 89,964 95,638
  • 123. Salt Silo – Low Bid Price Low Contract I/S: 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Sales1 1,590,000 2,120,000 1,590,000 1,351,500 1,419,075 1,490,029 1,564,530 1,642,757 1,724,895 1,811,139 Cost of sales 1,240,200 1,653,600 1,240,200 1,054,170 1,106,879 1,162,222 1,220,334 1,281,350 1,345,418 1,412,689 Gross margin 349,800 466,400 349,800 297,330 312,197 327,806 344,197 361,406 379,477 398,451 Admin support2 48,000 48,960 49,939 50,938 51,957 52,996 54,056 55,137 56,240 57,364 Sales rep3 - - 36,000 62,475 64,130 65,838 67,602 69,423 71,305 73,248 Engineering fees4 127,200 53,000 39,750 67,575 70,954 74,501 78,227 82,138 86,245 90,557 Depreciation5 63,825 97,796 72,658 55,226 43,098 19,641 13,737 9,610 6,725 4,706 Total expenses 239,025 199,756 198,348 236,214 230,138 212,977 213,621 216,308 220,514 225,876 Operating income 110,775 266,644 151,452 61,116 82,058 114,830 130,576 145,098 158,963 172,575 Taxes (25%) 27,694 66,661 37,863 15,279 20,515 28,707 32,644 36,275 39,741 43,144 Net income 83,081 199,983 113,589 45,837 61,544 86,122 97,932 108,824 119,222 129,431 Add back deprec 63,825 97,796 72,658 55,226 43,098 19,641 13,737 9,610 6,725 4,706 Cash flow 146,906 297,779 186,248 101,063 104,641 105,763 111,668 118,434 125,947 134,137 Discounted CF 133,551 246,098 139,931 69,027 64,974 65,671 69,337 73,538 78,203 83,289
  • 124. Salt Silo NPV and Goals 10 Year NPV Analysis: Note: Disc rate 10%, tax rate 25% Goal analysis: High Weighted Low High PV Weight PV Low PV Assump 1) 10% ROI required 226.70% 207.28% 174.80% Initial costs (398,000) (398,000) (398,000) 2) NI goals: Sum PV of cash flows 1,230,194 1,152,895 1,023,620 Base forecasted NI 554,529 778,859 715,134 Tax shield - plant equipment 57,545 57,545 57,545 c=320K, d=0.3 Salt silo NI High 245,320 147,592 69,552 Tax shield - computers 606 606 606 c=3K, d=0.55 Total NI High 799,849 926,451 784,685 Tax shield - leasehold improve 11,932 11,932 11,932 c=75K, d=0.2 Salt silo NI weighted 228,355 134,869 60,678 Total NPV for 10 years 902,277 824,978 695,703 Total NI Weighted 782,884 913,727 775,811 ROI 226.70% 207.28% 174.80% Salt silo NI Low 199,983 113,589 45,837 Payback period 1 Y 241 D 1 Y 264 D 1 Y 308 D Total NI Low 754,512 892,448 760,970 Goal 800,000 900,000 1,000,000 3) Implement by 2016 Attainable Constraint analysis: 1) Plant at capacity 8,000 additional sq ft required
  • 125. Salt Silo – 3 year NPV and ROI 3 Year NPV Analysis: High PV Weight PV Low PV Assump Initial costs $(398,000) $(398,000) $(398,000) Sum PV of cash flows $ 604,789 $ 572,905 $ 519,580 Sum of tax shields above $ 70,083 $ 70,083 $ 70,083 Sum TS above Total NPV $ 276,872 $ 244,988 $ 191,663 ROI 69.57% 61.55% 48.16%
  • 126. Inc Stmt – No Salt Silos in 000s (1/2) Actual Forecast Forecast Forecast Forecast Forecast Forecast 2014 2015 2016 2017 2018 2019 2020 Revenue $ 8,466 $ 8,466 $ 9,356 $10,609 $11,900 $12,775 $13,781 Freight revenue 44 46 51 58 65 69 75 Total Revenues 8,510 8,512 9,407 10,666 11,965 12,844 13,856 Cost of goods sold 6,503 6,721 7,218 8,332 9,090 9,937 10,917 Freight out 100 102 139 141 144 147 150 Total cost of goods sold 6,603 6,823 7,356 8,473 9,234 10,084 11,067 Gross margin 1,907 1,690 2,051 2,193 2,730 2,760 2,789 Production overhead: Depreciation 410 373 275 288 233 193 164 Write off LH improvement - - 159 - - - - Engineering Fees/ULC/ISO 37 39 41.49 47.90 52.25 57.12 62.76 Indirect plant wages 658 680 868 1,026 1,057 1,122 1,228 Processing supplies 361 373 476 562 580 615 673 Rework 52 54 69 81 84 89 97 Sale of scrap (11) (11) (14) (17) (18) (19) (20) Plant equipment costs 218 225 287 340 350 372 407 Building costs 527 538 189 135 139 142 146 Other production costs 78 81 103 122 126 133 146 Allocated overhead (2,286) (2,289) (2,426) (2,751) (2,965) (3,183) (3,434) Total production overhead 45 62 27 (164) (363) (478) (532)
  • 127. Inc Stmt – No Salt Silos in 000s (2/2) Actual Forecast Forecast Forecast Forecast Forecast Forecast 2014 2015 2016 2017 2018 2019 2020 General and administrative expenses: Administrative wages 620 670 791 904 960 1,018 1,079 Advertising and marketing 32 32 212 227 93 102 113 Office costs 121 154 168 172 175 178 181 Travel 157 160 71 73 74 76 77 Vehicle expense 70 72 73 75 76 78 79 Total general and admin. exp. 1,000 1,088 1,316 1,451 1,378 1,452 1,529 Bonus expense 17 17 17 18 18 18 19 Depreciation 33 29 54 67 44 30 21 Interest expense 73 53 47 42 37 31 26 Total other expenses 123 99 119 127 98 80 66 Total expense before OH alloc 1,168 1,248 1,462 1,413 1,114 1,053 1,063 Pre-tax income 740 441 589 780 1,616 1,707 1,726 Tax (25%) 185 110 147 195 404 427 432 Net income $ 555 $ 331 $ 442 $ 585 $ 1,212 $ 1,280 $ 1,295
  • 128. Inc Stmt – Salt Silos Original Contract Only in 000s (1/2) Actual Forecast Forecast Forecast Forecast Forecast Forecast 2014 2015 2016 2017 2018 2019 2020 Revenue $ 8,466 $ 8,466 $ 11,092 $ 12,923 $ 13,636 $ 12,775 $ 13,781 Freight revenue 44 46 60 70 74 69 75 Total Revenues 8,510 8,512 11,152 12,993 13,709 12,844 13,856 Cost of goods sold 6,503 6,721 8,571 10,137 10,444 9,937 10,917 Freight out 100 102 139 141 144 147 150 Total cost of goods sold 6,603 6,823 8,710 10,278 10,588 10,084 11,067 Gross margin 1,907 1,690 2,442 2,715 3,122 2,760 2,789 Production overhead: Depreciation 410 373 327 377 296 238 197 Write off LH improvement - - 159 - - - - Engineering Fees/ULC/ISO 37 39 188 116 103 57.12 62.76 Indirect plant wages 658 680 868 1,026 1,057 1,122 1,228 Processing supplies 361 373 476 562 580 615 673 Rework 52 54 69 81 84 89 97 Sale of scrap (11) (11) (14) (17) (18) (19) (20) Plant equipment costs 218 225 287 340 350 372 407 Building costs 527 538 189 135 139 142 146 Other production costs 78 81 103 122 126 133 146 Allocated overhead (2,286) (2,289) (2,426) (2,751) (2,965) (3,183) (3,434) Total production overhead 45 62 225 (7) (248) (432) (499)
  • 129. Inc Stmt – Salt Silos Original Contract Only in 000s (2/2) Actual Forecast Forecast Forecast Forecast Forecast Forecast 2014 2015 2016 2017 2018 2019 2020 General and administrative expenses: Administrative wages 620 670 839 953 1,046 1,018 1,079 Advertising and marketing 32 32 212 227 93 102 113 Office costs 121 154 168 172 175 178 181 Travel 157 160 71 73 74 76 77 Vehicle expense 70 72 73 75 76 78 79 Total general and admin. exp. 1,000 1,088 1,364 1,500 1,464 1,452 1,529 Bonus expense 17 17 17 18 18 18 19 Depreciation 33 29 55 69 44 31 21 Interest expense 73 53 47 42 37 31 26 Total other expenses 123 99 120 128 99 80 66 Total expense before OH alloc 1,168 1,248 1,709 1,621 1,315 1,099 1,096 Pre-tax income 740 441 733 1,094 1,806 1,661 1,693 Tax (25%) 185 110 183 274 452 415 423 Net income $ 555 $ 331 $ 550 $ 821 $ 1,355 $ 1,246 $ 1,270
  • 130. Metal Recycling Income Statement Steel:1 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Total steel sales 735,000 945,000 1,050,000 1,071,000 1,092,000 1,113,000 1,135,260 1,155,000 1,176,000 1,197,000 Total steel COGS 367,500 472,500 525,000 535,500 546,000 556,500 567,630 577,500 588,000 598,500 Copper:2 Total copper COGS 64,000 80,000 96,000 99,200 102,400 105,600 108,800 112,000 115,200 118,400 Total copper sales 112,000 140,000 168,000 173,600 179,200 184,800 190,400 196,000 201,600 207,200 Wire, alum, batt:3 Total W.A.B. COGS 10,000 12,500 15,000 15,300 15,606 15,918 16,236 16,561 16,892 17,230 Total W.A.B. sales 17,500 21,875 26,250 26,775 27,311 27,857 28,414 28,982 29,562 30,153 Income Statement: 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Gross Margin 423,000 541,875 608,250 621,375 634,505 647,639 661,407 673,921 687,069 700,223 Staff labour4 118,250 186,500 254,750 259,845 265,042 270,343 275,750 281,265 286,890 292,628 Staff benefits5 17,738 27,975 38,213 38,977 39,756 40,551 41,362 42,190 43,033 43,894 Lease+insur+fuel+supp6 140,250 143,055 145,916 148,834 151,811 154,847 157,944 161,103 164,325 167,612 Repairs and maint6 21,800 22,236 22,681 23,134 23,597 24,069 24,550 25,041 25,542 26,053 Transportation7 45,600 45,600 45,600 46,512 47,442 48,391 49,359 50,346 51,353 52,380 Depreciation 22,325 40,896 34,298 29,250 25,315 17,214 9,754 7,796 6,233 4,985 Pre tax income 57,038 75,613 66,792 74,822 81,541 92,223 102,688 106,180 109,693 112,671 Tax (25%) 14,259 18,903 16,698 18,706 20,385 23,056 25,672 26,545 27,423 28,168 Net income 42,778 56,710 50,094 56,117 61,155 69,167 77,016 79,635 82,269 84,503 Add back depreciation 22,325 40,896 34,298 29,250 25,315 17,214 9,754 7,796 6,233 4,985 Net cash flow 65,103 97,606 84,393 85,367 86,471 86,381 86,770 87,431 88,502 89,488 NI to TRU8 21,389 28,355 25,047 28,058 30,578 34,584 38,508 39,818 41,135 42,252 Net cash flow to TRU8 32,552 48,803 42,196 42,683 43,235 43,191 43,385 43,715 44,251 44,744 Discounted CF to TRU9 29,592 40,333 31,703 29,153 29,530 26,818 24,490 22,433 20,644 18,976
  • 131. Metal Recycling Loan Calculations Loan calculations: 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Beg Loan amount 109,000 109,041 108,386 108,061 107,435 106,557 105,279 103,608 101,806 99,873 Payment amount of loan1 2,139 2,835 2,505 2,806 3,058 3,458 3,851 3,982 4,113 4,225 Interest (2% $109,000) 2,180 2,180 2,180 2,180 2,180 2,180 2,180 2,180 2,180 2,180 Principal portion2 (41) 655 325 626 878 1,278 1,671 1,802 1,933 2,045 End loan amount2 109,041 108,386 108,061 107,435 106,557 105,279 103,608 101,806 99,873 97,828 PV payments (10% disc) 1,944 2,343 1,882 1,916 1,899 1,952 1,976 1,858 1,745 1,629 Notes: 1) 10% of MSAB's NI is the payment made to TRU. 2) Principal: payment less interest. End loan amount: Beginning amount less principal.
  • 132. Metal Recycling NPV and Goals 10 Year NPV Analysis: PV Assumptions Goal analysis: Initial costs $(218,000) Loan and capital amounts 1) 10% ROI required 42.30% Sum PV cash flows $ 273,672 10% discount rate 2) NI goals: 2017 2018 2019 Tax shield bins $ 8,352 10% disc, 20% CCA,1/2 to TRU Base forecasted NI 554,529 778,859 715,134 Tax shield computer $ 303 10% disc, 55% CCA, 1/2 to TRU Metal recycling NI 28,355 25,047 28,058 Tax shield car crusher $ 4,773 10% disc, 20% CCA,1/2 to TRU Total expected NI 582,884 803,906 743,192 Tax shield Lease improve $ 3,977 10% disc, 20% CCA,1/2 to TRU Goal 800,000 900,000 1,000,000 Sum PV Int payments $ 19,144 10% disc, 2016-2025 3) Implement by 2016 Attainable Total NPV for 10 years $ 92,221 ROI 42.30% Constraint analysis: Payback period 4 Y 327 D 1) Plant at capacity Not applicable
  • 133. Balgonie – High and Low Costs Initial costs: Low cost High cost Property price 245,000 375,000 Legal cost 7,350 11,250 Building upgr+plant equip 700,000 700,000 Total initial/capital costs 952,350 1,086,250
  • 134. Balgonie – New Costs Costs - new facility: 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Lease penalty1 56,572 - - - - - - - - - Additional freight costs2 35,000 35,700 36,414 37,142 37,885 38,643 39,416 40,204 41,008 41,828 Employee incentive3 48,000 48,000 48,000 48,000 48,000 - - - - - Property tax - new build4 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 Amortization5 70,000 125,500 100,200 81,255 66,882 55,821 47,177 40,317 34,785 30,256 Utility costs new building2 48,000 48,960 49,939 50,938 51,957 52,996 54,056 55,137 56,240 57,364 Insur. costs new building2 32,000 32,640 33,293 33,959 34,638 35,331 36,037 36,758 37,493 38,243 Total new costs 304,572 305,800 282,846 266,294 254,362 197,790 191,686 187,415 184,526 182,692 Notes: 1) 3 months rent main facility: ($12/ square foot, $2.5 operating/sq foot*inflation at 2% for two years*15,000 square feet)/4 2) Assuming annual inflation at 2%. 3) 4,000 per month for 5 years. 4) Taxes do not increase until 2025. 5) Declining balance method with half year rule. Building beg UCC: $650,000, CCA: 10%. Plant equip beg UCC: $250,000, CCA: 30%.
  • 135. Balgonie – Cost Savings Cost savings old facil: 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Main facility rent1 226,287 248,916 273,807 279,283 284,869 290,566 296,378 302,305 308,351 314,518 2nd facility rent2 143,055 157,361 173,097 176,558 180,090 183,691 187,365 191,113 194,935 198,834 Third facility rent3 18,727 19,102 19,484 19,873 20,271 20,676 21,090 21,512 21,942 22,381 Main facility utility costs4 30,600 31,212 31,836 32,473 33,122 33,785 34,461 35,150 35,853 36,570 2nd facility utility costs4 30,600 31,212 31,836 32,473 33,122 33,785 34,461 35,150 35,853 36,570 Facility insurance5 7,140 7,283 7,428 7,577 7,729 7,883 8,041 8,202 8,366 8,533 Total savings 456,409 495,085 537,489 548,238 559,203 570,387 581,795 593,431 605,299 617,405 Total new costs6 304,572 305,800 282,846 266,294 254,362 197,790 191,686 187,415 184,526 182,692 Annual savings/profit 151,837 189,285 254,643 281,944 304,841 372,597 390,109 406,015 420,774 434,713 Additional taxes (25%) 37,959 47,321 63,661 70,486 76,210 93,149 97,527 101,504 105,193 108,678 Savings after tax/NI 113,878 141,964 190,982 211,458 228,631 279,448 292,582 304,511 315,580 326,035 Add back depreciation 70,000 125,500 100,200 81,255 66,882 55,821 47,177 40,317 34,785 30,256 Added cash flows 183,878 267,464 291,182 292,713 295,513 335,269 339,759 344,828 350,365 356,291 PV of cash flows 167,162 221,044 218,769 199,927 183,490 304,790 280,793 259,074 239,304 221,229 Notes: 1) 15,000 sq ft x $14.50/sq ft in 2014 with 2% growth 2015 and 2016. 10% cost growth in 2017 and 2018, 2% cost growth thereafter. 2) 10,000 sq ft x $13.75/sq ft in 2014. Same annual increases as main facility. 3) $1,500/month in 2014, with 2% annual inflation. 4) $2,500/month in 2015 with 2% annual inflation. 5) $7,000 expense in 2015 with 2% annual inflation. 6) Calculated on prev. page in Appendix 10.
  • 136. Balgonie – NPV and Goal 10 Year NPV Analysis: Note: Disc rate 10%, tax rate 25% Goal analysis: High NPV Low NPV Assumption 1) 10% ROI required 122.59% - 153.89% > 10% goal Initial costs (952,350) (1,086,250) 2) NI goals: 2017 2018 2019 PV cash flows 2,295,582 2,295,582 Base forecasted NI $554,529 $778,859 $ 715,134 Tax shield building 77,557 77,557 i=650,000, CCA=10% Balgonie NI effect $141,964 $190,982 $ 211,458 Tax shield plant equipment 44,744 44,744 i=250,000, CCA=30% Total expected NI $696,493 $969,841 $ 926,592 Total NPV for 10 years 1,465,534 1,331,634 Goal $800,000 $900,000 $1,000,000 ROI 153.89% 122.59% 3) Implement by 2016 Attainable Payback period 3 Y 362 D 4 Y 63 D Constraint analysis: 1) Plant at capacity Increases capacity to 60,000 sq ft
  • 137. Town of Balgonie Information • Small, but growing town: • 2011 population of 1,625 • 2006 to 2011 population growth rate of 17.4% • 3.17 km2 of land area • Balgonie is promoting commercial growth: • Annual property taxes will remain at $15,000 until 2025 • 25 km East of Regina on the Trans-Canada Highway • Sufficient train access: • CPR mainline parallels the Trans-Canada Highway • TRU’s community involvement can have a significant impact on Balgonie • Amenities: • Library, multiplex, swimming pool, hockey rinks, golf courses, restaurants.
  • 138. Alberta Base Sales Projections Annual AB Revenue Projections without sales office in AB: 2014/15 revenue $ 8,466,400 2016 forecast AB rev $ 3,111,402 % AB revenue 35% 2018 forecast AB rev $ 3,266,972 2015 forecast AB rev $ 2,963,240 Note: Assumed that AB sales remain flat, and are at same sales volumes as 2014 without a sales office in Alberta. 5% scheduled price increases in '16 and '18, increasing sales revenue in 2016 and 2018 over previous years totals by 5%.
  • 139. Edmonton Office – Income Statement in 000s Margin Analysis Assuming no Sales Office in Alberta (Thousands $): 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 AB rev without AB office1 $ 3,111 $ 3,111 $ 3,267 $ 3,267 $ 3,345 $ 3,446 $ 3,549 $ 3,656 $ 3,765 $ 3,878 AB GM without AB office2 622 622 653 653 669 689 710 731 753 776 Relevant Revenue and Cost Analysis for Opening Sales Office in Alberta (Thousands $): Expected rev with AB office3 $ 3,578 $ 4,830 $ 5,833 $ 6,708 $ 7,714 $ 8,100 $ 8,505 $ 8,930 $ 9,376 $ 9,845 Expected GM with AB office2 716 966 1,167 1,342 1,543 1,620 1,701 1,786 1,875 1,969 Incremental GM with AB office 93 344 513 688 874 931 991 1,055 1,122 1,193 Expenses/(savings): AB Additional sales salary4 - 37 38 39 40 41 41 42 43 44 Incremental sales comm.5 23 86 128 172 218 233 248 264 281 298 Sev/mov all/lease set up6 85 - - - - - - - - - Lease7 30 32 33 35 36 38 40 42 44 47 Utilities8 6.00 6.12 6.24 6.37 6.49 6.62 6.76 6.89 7.03 7.17 Telephone9 7.20 8.57 8.74 8.91 9.09 9.27 9.46 9.65 9.84 10.04 Insurance8 1.20 1.22 1.25 1.27 1.30 1.32 1.35 1.38 1.41 1.43 Advertising and mark10 179 193 58 67 77 81 85 89 94 98 Travel savings11 (140) (143) (146) (149) (152) (155) (158) (161) (164) (167) Travel costs8 48 49 50 51 52 53 54 55 56 57 Profit added before taxes (146) 74 335 456 585 623 663 705 750 797 Income tax (25%) (37) 18 84 114 146 156 166 176 188 199 Net profit added $ (110) $ 55 $ 251 $ 342 $ 438 $ 467 $ 497 $ 529 $ 563 $ 598
  • 140. Edmonton Office – Goal Analysis Goal analysis: 1) 10% ROI required - No investment required 3) Implementation by 2016 Attainable 2) NI goals: 2017 2018 2019 Constraint analysis: Base forecasted NI 554,529 778,859 715,134 1) Plant at capacity No additional capacity required Balgonie NI effect 55,210 251,063 342,308 Total expected NI 609,739 1,029,921 1,057,441 Payback period 2 Y 124 D Goal 800,000 900,000 1,000,000
  • 141. Advantage of Edmonton Office Over Only Moving Staff to Alberta • More reputable to customers • TRU has more control over sales people • Travel costs may increase without office • Lease, utilities, and insurance is projected to be $37,200 in 2016 • Lease increases at 5% per year • Utilities and insurance increase at 2% per year • Low cost for premises and solid value for benefits associated with office • Expected sales growth may not be realized without reputable space and sufficient control on sales staff
  • 142. Alternative Goal Comparison Get Tanked1 HBC1 Salt silos2 Metal Rec Balgonie1 Edm office Cost $ 5,000,000 $ 605,000 $ 398,000 $ 218,000 $1,019,300 $ 10,000 PV Additional cost $ 476,190 $ - $ - $ - $ - $ - 2017 net income $ 1,020,087 $ 59,300 $ 228,355 $ 28,355 $ 141,964 $ 55,210 2018 net income $ 943,174 $ 97,362 $ 134,869 $ 25,047 $ 190,982 $ 251,063 2019 net income $ 1,116,940 $ 109,861 $ 60,678 $ 28,058 $ 211,458 $ 342,308 ROI (10 years) 26.88% 102.79% 207.28% 42.30% 138.24% N/A Payback period 4 Y 165 D 3 Y 90 D 1 Y 264 D 4 Y 322 D 4 Y 30 D 2 Y 124 D
  • 143. Balgonie and HBC Not Feasible Balgonie Plant Purchase and HBC Alternative: Balgonie cost $ 1,019,300 HBC cost $ 605,000 Total required $ 1,624,300 Total available $1,523,348
  • 144. Recommendation: Goal and Constraints Financing: Constraint analysis: (figures in square feet) Salt silos $ 398,000 Base production required 25,000 Balgonie (assuming worst case) $ 1,086,250 Salt silo production required 8,000 Edmonton office $ 10,000 Balgonie capacity 60,000 Total cost of alternatives (worst case) $ 1,494,250 Excess capacity 27,000 Financing available at May 1, 2015 $ 1,523,348 Net income goals: Base Salt silos Balgonie Edm office Total Goal 2017 $ 554,529 $ 228,355 $ 141,964 $ 55,210 $ 980,058 $ 800,000 2018 $ 778,859 $ 134,869 $ 190,982 $ 251,063 $1,355,772 $ 900,000 2019 $ 715,134 $ 60,678 $ 211,458 $ 342,308 $1,329,577 $ 1,000,000 ROI goals: Salt silos Balgonie Edm office 10 year ROI 207.28% 138.24% N/A Goal 10% 10% 10% *All alternatives can be implemented by 2016*
  • 145. ERP Price Starting Price 20,000 Minimum revenue that system will facilitate 1,000,000 Estimate of TRU's revenue 10,000,000 TRU revenue/minimum revenue 10 Ratio x starting price 200,000 Expected cost of ERP
  • 146. Triple Bottom Line ScorecardFinancial Accountability Perspective Objective Measure Targets Improve profitability Increase net income after tax NI after-tax of $800k in 2017, $900k in 2018 & $1M in 2019 Improve sales results Revenue growth Annual increase in sales revenue greater than market growth rate of 2.4% Ensure efficient use of capital Invest in profitable ventures Min ROI required of 10% for projects Customer Perspective Objective Measure Targets Diversify product offerings Provide customers with a wider variety of products Manufacture salt silos Improve community involvement Involvement in charitable causes TRU is involved in a minimum of 1 charitable event per quarter Diversify market segments Gain customers in new market segments Pursue salt silo venture and gain Government as a client Customer satisfaction Offer desired products at desired specifications to customers Improved customer feedback from surveys Internal Process Perspective Objective Measure Targets Diversify sheet steel suppliers Number of sheet steel vendors Maintain 3 suppliers of sheet steel Improve welding quality Decrease number of deficient welds per tank In line with averages of 10 deficient welds per tank by the end of 2016 Establish sufficient HR department Standardize hiring practices and incentives Create standardization across TRU by the end of 2015 Employee satisfaction Employee surveys and retention Seek for continuous improvement in employee surveys, and increases in retention Environment Perspective Objective Measure Targets Energy Energy Consumption footprint Annual reduction in energy footprint Packaging Paperless office Become paperless office by Jan 2018 Greenhouse Gases Total greenhouse gases Annual reduction in greenhouse gases
  • 147. Action Plan - Strategic Task Responsibility Start End Costs Recommendation: Present case and recommendation Boyce Jun-15 Jun-15 Salary exp Obtain financing from Harding and Toth Harding/Toth Jun-15 Jun-15 Salary exp Release statement to TRU employees Harding Jun-15 Jun-15 Salary exp Salt Silos: Construct and submit a competitive bid Toth/Patel Jun-15 Jul-15 Salary exp Purchase+install SS equipment in Balgonie Harding/Toth/ Patel Aug-15 Dec-15 Salary exp Hire production employees to facilitate SS HR Manager Oct-15 Dec-15 Salary exp Establish distribution network to Manitoba Toth Nov-15 Jan-16 Salary exp
  • 148. Action Plan – Other Alternatives Balgonie: Responsibility Start End Costs Negotiate fair price for plant Harding/Patel Jun-15 Jun-15 Salary exp Initiate upgrades to building Toth/Patel Jun-15 Jun-15 Salary exp Inform employees about financial incentives Harding Jul-15 Jul-15 Salary exp Formulate/execute plan for equip transfers Patel/Cossacks/ Jiroux Jun-15 Dec-15 Salary exp Inform business partners - location change Wall/Patel Dec-15 Mar-16 Salary exp Edmonton Sales Office: Secure and set up lease site in Edmonton Wall/Harding Jun-15 Dec-15 $10K Offer severance/moving allowances HR Man/Wall Oct-15 Dec-15 $75K Hire salespeople replacements HR Man/Wall Oct-15 Dec-15 Salary exp
  • 149. Action Plan – Minor Issues (1/3) New Human Resource Manager: Responsibility Start End Costs Hire HR Manager + company orientation Toth Jun-15 Jun-15 $75K/year Start social committee/track involvement HR Manager Aug-15 Sep-15 Salary exp Create and implement BSC+restructure bonus plan to align with BSC Boyce/Toth/Hardi ng/HR Man Jul-15 Dec-15 Salary exp Notify employees about BSC and bonuses Harding Jan-16 Jan-16 Salary exp Create social reports+introduce control to update website after charitable events HR Manager Sep-15 Oct-15 Salary exp Standardize benefits/implement hire control HR Manager Feb-15 Mar-15 Salary exp Create+distribute employee surveys HR/Patel/Wall Jan-15 Mar-15 Salary exp Ensure Sufficient Steel Supply: Contact suppliers and secure business Patel Jun-15 Jul-15 Salary exp
  • 150. Action Plan – Minor Issues (2/3) Lawsuit: Responsibility Start End Costs Inform legal counsel for advise Toth Jun-15 Jun-15 $2K Contact party to attempt a resolution Wall/Toth Jun-15 Aug-15 Salary exp Create warranty waiver to include with sales Wall Jun-15 Jul-15 Salary exp Implement Red Seal Apprenticeship Training: Fill out paperwork to register with Red Seal HR Manager Jun-15 Jul-15 Salary exp Stagger emp. schedules to attend courses HR Man/Patel Jun-15 Jul-15 Salary exp Hire journeymen for a 3:1 ratio HR Man/Patel Jun-15 Aug-15 Salary exp Communicate offering - apprenticeship Harding Jun-15 Aug-15 Salary exp Complete apprenticeship paperwork HR Manager Jun-15 Aug-15 Salary exp Decrease Days Sales Outstanding: Contact customers re: new AR policy Wall Jun-15 Aug-15 Salary exp
  • 151. Action Plan – Minor Issues (3/3) Task Responsibility Start End Costs Purchasing Third Party Cradles: Begin business relationship with comp. Patel Jun-15 Jul-15 Salary exp Clear cradle production area Patel Jan-15 Mar-15 Salary exp Ethics: Draft Code of Business Conduct HR Manager Jun-15 Jun-15 Salary exp Communicate code of conduct to empl. Harding Jul-15 Jul-15 Salary exp Warn prod. employee/ethics training HR Man/Patel Jun-15 Jun-15 $ 500 Hold ethics seminar for staff HR Manager Jul-15 Jul-15 $10K Implement ERP System/website Improvements: Hire external IT Consultant Toth/HR Man Jun-15 Jun-15 $35K/year Purchase ERP system Harding/Toth Jul-15 Jul-15 $200K Train staff to use ERP IT consultant Aug-15 Dec-15 Salary exp Clone data and implement ERP IT consultant Dec-15 Dec-15 Salary exp Change website to meet needs IT consultant Jan-16 Feb-16 Salary exp
  • 152. Pro Forma – Cash Flow in 000s Cash Flow From Operations - Indirect Method: 2015 2016 2017 2018 2019 2020 Net Income $ 331 $ 550 $ 821 $ 1,355 $1,349 $1,380 (Increase)/Decrease in AR $ (0) $ (338) $ (236) $ (92) $ (79) $ (139) (Increase)/Decrease in Inventory $ (0) $ (172) $ (120) $ (47) $ (40) $ (71) (Increase)/Decrease in Prepaid Expenses $ (0) $ (46) $ (32) $ (12) $ (11) $ (19) Total Cash Flow From Current Assets $ (0) $ (556) $ (388) $ (151) $ (130) $ (229) Increase/(Decrease) in AP $ 0 $ 192 $ 134 $ 52 $ 45 $ 79 Increase/(Decrease) in dues to gov't agencies $ 0 $ 76 $ 53 $ 21 $ 18 $ 31 Increase/(Decrease) other liabilities $ 0 $ 64 $ 44 $ 17 $ 15 $ 26 Increase/(Decrease) current portion of LTD $ - $ - $ - $ - $ - $ - Increase/(Decrease) in income taxes payable $ (75) $ 73 $ 90 $ 178 $ (2) $ 11 Total Cash Flow From Current Liabilities $ (74) $ 405 $ 321 $ 268 $ 76 $ 147 Total Cash Flow From Operations $ 256 $ 398 $ 754 $ 1,472 $1,294 $1,298 Cash Flow From Investing: (Increase)/Decrease in Capital Assets1 $(1,216) $ 536 $ 320 $ 340 $ 144 $ 218 Total Cash Flow From Investing $(1,216) $ 536 $ 320 $ 340 $ 144 $ 218 Increase/(Decrease) long term debt $ (83) $ (83) $ (83) $ (83) $ (83) $ (83) Proceeds from issuance of share capital2 $ 800 $ - $ - $ - $ - $ - Dividends (Paid)3 $ - $ - $ - $ - $ - $ - Total Cash Flow From Financing $ 717 $ (83) $ (83) $ (83) $ (83) $ (83) Net increase in cash $ (243) $ 851 $ 991 $ 1,729 $1,355 $1,434 Cash and equiv balance beginning of the year $ 667 $ 425 $ 1,276 $ 2,267 $3,996 $5,352 Cash balance end of the year $ 425 $ 1,276 $ 2,267 $ 3,996 $5,352 $6,785
  • 153. Pro Forma – Balance Sheet in 000s (1/2) Assets Actual Forecast Forecast Forecast Forecast Forecast Forecast Current Assets: 2014 2015 2016 2017 2018 2019 2020 Cash $ 667 $ 425 $ 1,276 $ 2,267 $ 3,996 $ 5,352 $ 6,785 Net accounts receivable 1,090 1,090 1,429 1,664 1,756 1,835 1,974 Inventory 555 556 728 848 895 935 1,006 Prepaid expenses 148 148 194 227 239 250 269 Total current assets 2,461 2,219 3,626 5,006 6,886 8,372 10,034 Long term Assets: Leasehold improvements 239 159 - - - - - Office equipment 20 15 10 3 1 1 0 Manufacturing equipment 977 1,254 963 781 546 489 342 Vehicles 69 48 34 24 17 12 8 Land - 119 119 119 119 119 119 Building - 725 689 620 558 502 452 Operating software - 200 170 119 83 58 41 Total long term Assets 1,305 2,521 1,985 1,665 1,325 1,181 963 Total Assets $3,767 $ 4,740 $ 5,612 $ 6,671 $ 8,211 $ 9,553 $10,997
  • 154. Pro Forma – Balance Sheet in 000s (2/2) Liabilities Actual Forecast Forecast Forecast Forecast Forecast Forecast Current Liabilities: 2014 2015 2016 2017 2018 2019 2020 Trade Accounts Payable $ 621 $ 621 $ 813 $ 947 $ 1,000 $ 1,045 $ 1,124 Due to government agencies 244 244 319 372 392 410 441 Other liabilities and acc exp 205 205 268 313 330 345 371 Current portion of LTD 83 83 83 83 83 83 83 Income taxes payable 185 110 183 274 452 450 460 Total current liabilities 1,337 1,262 1,667 1,988 2,256 2,332 2,479 Bank loan 201 182 163 144 125 106 88 Venture capital payable 618 554 490 426 362 297 233 Total Long-term debt 819 736 653 570 487 404 321 Total Liabilities 2,155 1,998 2,320 2,558 2,743 2,736 2,800 Equity Share capital 75 875 875 875 875 875 875 Current earnings 555 331 550 821 1,355 1,349 1,380 Beginning Retained earnings 1,314 1,536 1,867 2,417 3,238 4,593 5,942 Dividends paid (333) - - - - - - Total end retained earnings 1,536 1,867 2,417 3,238 4,593 5,942 7,322 Total Equity 1,611 2,742 3,292 4,113 5,468 6,817 8,197 Liabilities and equity $3,767 $ 4,740 $ 5,612 $ 6,671 $ 8,211 $ 9,553 $10,997
  • 155. Pro Forma – Income Statement in 000s (1/2) Actual Forecast Forecast Forecast Forecast Forecast Forecast 2014 2015 2016 2017 2018 2019 2020 Revenue $ 8,466 $ 8,466 $11,092 $12,923 $13,636 $14,250 $15,330 Freight revenue 44 46 60 70 74 77 83 Total Revenues 8,510 8,512 11,152 12,993 13,709 14,327 15,413 Cost of goods sold 6,503 6,721 8,571 10,137 10,444 11,087 12,125 Freight out 100 102 139 141 144 147 150 Total cost of goods sold 6,603 6,823 8,710 10,278 10,588 11,234 12,275 Gross margin 1,907 1,690 2,442 2,715 3,122 3,093 3,138 Production overhead: Depreciation 410 373 327 377 296 238 197 Write off LH improvement - - 159 - - - - Engineering Fees/ULC/ISO 37 39 188 116 103 137 147 Indirect plant wages 658 680 868 1,026 1,057 1,122 1,228 Processing supplies 361 373 476 562 580 615 673 Rework 52 54 69 81 84 89 97 Sale of scrap (11) (11) (14) (17) (18) (19) (20) Plant equipment costs 218 225 287 340 350 372 407 Building costs 527 538 189 135 139 142 146 Other production costs 78 81 103 122 126 133 146 Allocated overhead (2,286) (2,289) (2,426) (2,751) (2,965) (3,183) (3,434) Total production overhead 45 62 225 (7) (248) (352) (415)
  • 156. Pro Forma – Income Statement in 000s (2/2) Actual Forecast Forecast Forecast Forecast Forecast Forecast 2014 2015 2016 2017 2018 2019 2020 General and administrative expenses: Administrative wages 620 670 839 953 1,046 1,133 1,197 Advertising and marketing 32 32 212 227 93 102 113 Office costs 121 154 168 172 175 178 181 Travel 157 160 71 73 74 76 77 Vehicle expense 70 72 73 75 76 78 79 Total general and admin. exp. 1,000 1,088 1,364 1,500 1,464 1,566 1,646 Bonus expense 17 17 17 18 18 18 19 Depreciation 33 29 55 69 44 31 21 Interest expense 73 53 47 42 37 31 26 Total other expenses 123 99 120 128 99 80 66 Total expense before OH alloc 1,168 1,248 1,709 1,621 1,315 1,294 1,298 Pre-tax income 740 441 733 1,094 1,806 1,798 1,841 Tax (25%) 185 110 183 274 452 450 460 Net income $ 555 $ 331 $ 550 $ 821 $ 1,355 $ 1,349 $ 1,380 Profit margin 6.55% 3.91% 4.96% 6.35% 9.94% 9.47% 9.00%

Editor's Notes

  1. Insert Mission/Vision after Main Issues. Then Goals.
  2. Get Tanked Financing on the Left (diff colour)
  3. We have a strong internal staff however there are some production inefficiencies that need to be addressed to improve operating results. There is diversity oppurtunity that we can take advantage of while beauing cautious of economic/seasonal and political threat.
  4. Minor Issuess sli
  5. TRU maintains good, long-term relationships with farm organization customers, and they can leverage this strength with the farm customers in the GT contract. Takes advantage of the demand for metal tanks in Alberta. Alberta holds 25.5% of industry establishments. Ample unused capacity of 31,250 square feet, mitigating a weakness that TRU is at production capacity. Abundant room for finished goods – 5 acres of land, which mitigates a weakness of limited storage space. GT holds a long term contract that does not expire until 2025.
  6. GT production employees are unionized, which may entice workers in Saskatchewan to unionize. - swot Buying GT will add another site leading to further inefficiencies. Does not diversify product line because TRU already produces similar sized GT tanks are single walled, which is not in line with TRU’s strength of producing double walled tanks that prevent leakages. Tanks are not all Transport Canada approved.
  7. Not within capacity requiring 8,000 additional square feet of production. TRU has no experience in manufacturing or selling HBC. Threatened by harsh winters/droughts that have potential to drop demand for agricultural products. Does not provide customer diversification or diversifies sales by region.
  8. Solves part of main issue to diversify by administering sales in a new province in Manitoba, and diversifies TRU’s product line. Customers are outside the oil and agricultural industries, allowing customer diversification. Salt silo production does not differ greatly from metal tanks, allowing TRU to leverage its knowledge in metal tanks. Steady demand is anticipated due to harsh Canadian winters. Customers are relatively unaffected by market fluctuations, since salt is consistently required for Canadian winters. Mitigates a threat of harsh winters reducing agricultural production and dropping demand for tanks since harsh winters increase salt silo demand.
  9. Not within capacity requiring 8,000 additional square feet of production. Complicates a weakness of welder shortage - additional welders will be required for production. TRU has no experience manufacturing and selling salt silos.
  10. Solves portion of main issue of diversification with metal recycling. Grants opportunity to gain entry into recycling steel which is the most recycled substance in North America. Satisfies opportunity that scrap metal prices have increased by almost 400% since 2001; future demand is expected to increase more rapidly than supply. Shows that TRU is concerned with environment - may be viewed positively by clients.
  11. TRU has no experience in metal recycling. TRU provides 100% of the financing, but only holds a 50% Equity stake. Financing is risky considering TRU has no previous relationship with MSAB. Longest payback period expected of alternatives at 4 years and 322 days. Generates minimal NPV after 10 years of $92,221.
  12. Mitigates weakness by increasing capacity to 60,000 square feet, supporting current production at 25,000 square feet, leaving 35,000 square feet excess. Mitigates a weakness of limited storage space for completed goods - plant includes 10 acres of land. Mitigates a weakness in operating multiple sites leading to inefficiencies. Balgonie has good access to the highway, many amenities, and property taxes will not increase until 2025.
  13. Relatively long payback period of 3 years 362 days to 4 years 63 days. Balgonie is 30 minutes from Regina Extra freight cost of 35K per year for materials and supplies Employees may be unwilling to drive to the location. Toth: Also, it wouldn’t present the image we want to project — that of a growing company — since small towns are more often seen as bedroom communities than as progressive centres of business.
  14. Mitigates weakness that sales staff is tired from extensive travel. Exploits an opportunity that Alberta accounts for 50% of Canada’s oil production by opening an office near oil producers to capture metal tank demand for oil storage. Cassandra’s research indicates that opporunities will only be realized if TRU competes head-on against local Alberta competitors Diversifies sales by region, shifting sales more evenly across regions.
  15. Long payback period considering the initial cost is $10,000 at 2 years and 124 days. Alberta houses 25.5% of metal tank establishments, providing heavy competition. The recent decline in the oil prices may reduce metal tank demand. There is political uncertainty in Alberta due to recent government changes.
  16. All alternatives are within financing available. Get Tanked is the highest costs.
  17. High ROI important considering restricted financing Edm Office is not a capital investment
  18. Line Graph it
  19. Rule to the power of Bonstar
  20. Wanna change to Orange Risk is worth reward Still achieve ROI and NI Goals within 3 year contract Wordiness
  21. Long payback period (4 years) 30 minute drive from Regina Additional freight costs for materials and supplies Possibility of employees not willing to commute Project TRU as a small town company The lease arrangement is favorable currently, but the cost savings associated with purchasing Balgonie and consolidating outweigh a positive in favorable lease prices. wordiness  Production equipment should be moved once Balgonie is ready for production to allow for maximum production. Involve Raj Patel, Sasha Cossacks, and Alex Jiroux in formulating a plan to transition all equipment efficiently between locations to maximize production. Offer employee incentives for 5 years at an annual expense of $48,000. Wanna change to Orange theme
  22. Long payback period (2.3 years) Highly competitive Alberta market Recent decline in oil prices Political uncertainty The issues will likely restrict investment in Alberta for metal tanks and provide high competition. The change in Alberta increases the need to open a sales office in Edmonton to better capture the demand and increase Alberta sales. Not opening a sales office will put TRU in a poor position to capture demand and will result in flat sales growth from Alberta as opposed to robust expected sales growth with an office.
  23. Initiate a share offering for regular shares to account for the additional $800,000 in investment: Mitch Harding share: $75,000 current share capital + $1,536,197 RE + $500,000 added for 87.56% ownership. Greg Toth: $300,000 share capital for 12.44% ownership Total Equity: $2,411,197. The share structure ensures that Harding retains voting control of TRU. Harding does not receive shares of a different class, but still retains control of TRU, and all of his mandated goals are projected to be met. Greg Toth is granted an opportunity to invest in a profitable company that is forecasted to grow.
  24. Have to make changes to the font at the top! Kaylan D8s
  25. Have to make changes to the font at the top! Kaylan D8s
  26. Have to make changes to the font at the top! Kaylan D8s
  27. Have to make changes to the font at the top! Kaylan D8s
  28. Have to make changes to the font at the top! Kaylan D8s
  29. Have to make changes to the font at the top! Kaylan D8s
  30. Components of the software will integrate costing and accounting, thereby reducing the amount of manual entries. The software tracks inventory levels effectively, facilitating efficient ordering of supplies. The financial reporting function will allow TRU to track customer sales data. Production reporting will enable TRU to track employee labour worked on certain jobs, allowing TRU to determine sources of deficient welds and track the poor work to certain employees. The system will add accountability to production employees and allow TRU to pursue corrective action.