Project Greenland Cost Report - Initial Draft
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This document provides details of the estimated costs for a proposed biomass briquetting project in Greenland. It estimates total capital expenditures of £108,265 which includes costs for machinery, engineering, and office equipment. Estimated annual production costs are £108,397 in year one. The project is estimated to break even at 37% capacity in year four and fully recover the initial investment by the end of year three. Financial analysis shows the project will be profitable, with a net profit margin increasing each year from 12% to 28% and a return on investment rising from 24% to over 100%.
Project Greenland Cost Report - Initial Draft
- 1. PROJECT GREENLAND BIOMASS BRIQUETTING PROJECT: DETAIL PROJECT COSTS (Initial Draft) Prepared by Rupak Parekh October 2010
- 2. TABLE OF CONTENTS 1. PROPOSED PROJECT................................................................................................................................... 1 1.1. PROJECT CAPACITY AND MAIN INPUTS................................................................................... 1 1.2. LOCATION AND INFRASTRUCTURE .......................................................................................... 2 1.3. PRODUCTION PROGRAMME.......................................................................................................... 2 1.4. BASIC ASSUMPTIONS.......................................................................................................................... 3 2. ESTIMATED PROJECT COSTS.................................................................................................................. 4 2.1. FINANCIAL ANALYSIS OF PROPOSED INVESTMENT ........................................................ 4 2.1.1. ESTIMATED CAPITAL EXPENDITURE (GBP)................................................................. 4 2.1.2. ESTIMATED PRODUCTION AND OPERATING EXPENDITURE (GBP)................. 5 2.1.3. ESTIMATED REVENUE (GBP)............................................................................................... 5 2.1.4. PARTICULARS .............................................................................................................................. 6 3. FINANCIAL EVALUATION........................................................................................................................ 8 3.1.1. PROFITABILITY ANALYSIS..................................................................................................... 8 3.1.2. BREAK-EVEN ANALYSIS........................................................................................................ 8 3.1.3. PAY BACK PERIOD...................................................................................................................... 9 4. REFERENCES ................................................................................................................................................10
- 3. 1 1. PROPOSED PROJECT 1.1. PROJECT CAPACITY AND MAIN INPUTS The proposed project envisages an agricultural processing plant manufacturing on average, 15 tonnes of biomass briquettes per day which will be marketed as a replacement fuel for charcoal in steam locomotives. It is envisaged that Great Central Railway, Loughborough along with other local locomotive operators will agree to purchase up to 5,000 tonnes of briquettes per annum. The raw material will be municipal green waste; primarily grass, 100% collected locally from households and other waste sites by Leicestershire City Council. A council owned and operated waste facility in Loughborough; Leicestershire promotes a holding capacity of 25,000 tonnes for municipal garden waste. The facility based in Lount, stores waste from across the county indicating the amount that could be generated and supplied annually, while eliminating any problems that may arise regarding available waste during changes in seasonality. It is for these reasons that the waste has a high potential to be used as a raw material for large scale briquette production. In order to run a commercially viable briquetting plant, the project design anticipates an output of 1.5 tonnes per hour of briquettes, produced at full capacity from two briquetting presses which have an individual maximum output of 750 kg per hour. It is expected that approximately 1.1 tonnes of dry municipal waste, will be required in order to produce one tonne of briquetting; an additional 10% allowing for the biomass’ moisture content. It is however expected, that the amount required prior to drying will be significantly greater. The biomass pellets would have a diameter of approximately 60mm and adjustable length of 100mm. At full production, it is expected that the plant will have an annual capacity of 5,490 tonnes assuming 305 working days per annum at 12 hours per day. Of this, 10% has been allocated to be consumed by the flash dryer in order to reduce electricity costs and further encourage the reduction in greenhouse gas emissions, by making full use of the produced biofuel. On this basis, the maximum saleable output is 4941 tonnes per annum.
- 4. 2 1.2. LOCATION AND INFRASTRUCTURE Storing waste at the facility in Lount, ensures health and safety protocol is achieved that may otherwise be of concern if stored at the plant itself, while in turn reducing total expenditure through storage costs. The geographical location of the plant can have a direct influence upon the success of the overall project, both financially and commercially. Loughborough encompasses strong transportation links, with easily accessible road networks and direct rail links to London, Nottingham and Leeds. Smaller waste facility sites are also available at a number of locations across the county and the town is centrally located in close proximity of major cities in the East Midlands. Primarily from a cost perspective, this is reflected in a reduced cost of transportation. Additionally, Loughborough is located within 30 miles of the University of Nottingham’s School of Biosciences; the university being ranked at the top of the league tables for facilitating Agricultural degrees. Essentially this provides an opportunity to encourage a key objective of the foundation; to increase the pool of local engineering expertise and for those at post-graduate level to be directly involved in a sustainable, clean energy and related industry. Furthermore, with the town located near the former home of agricultural revolutionist Robert Bakewell, there is a probability of local commercial businesses likely to stimulate and support the targeted outcomes of the foundation. 1.3. PRODUCTION PROGRAMME With consideration for the time required for gradual build up in market, labour productivity, fine tuning of machinery and available funds; it is anticipated that production will begin in Year 1 at 55% of the plant’s full capacity. The maximum production output will be reached in Year 4 of operation and continue thereafter. The envisaged production programme is illustrated in Table 1.1 below. Year 1 2 3 4 5 Capacity Utilisation (%) 55 67 83 100 100 Production output (Tonnes) 3036 3660 4575 5490 5490 Table 1.1: Production Programme
- 5. 3 1.4. BASIC ASSUMPTIONS The basic assumptions for all calculations are as follows: Production of 4941 tonnes per annum of saleable biomass briquettes, at full production capacity Project to be financed by raising the full amount of capital required; total estimated capital expenditure will be £ 150,000 Plant life expectancy of 10 years No costs are associated with acquisition of raw material as it is sourced from the local government authority Land and buildings will be rented, not leasehold, with a total area of 1,000m2 required Depreciation of plant, machinery and equipment calculated at cost on a 10% straight line basis Selling price per tonne, cost of direct labour and salaries calculated assuming an inflation rate of 2% per annum Maintenance and repair work will be carried out by external contractors General cleaning and upkeep of the plant will be carried out by unskilled labourers Selling, administrative and distribution responsibilities will be carried out at the SCCF London offices
- 6. 4 2. ESTIMATED PROJECT COSTS 2.1. FINANCIAL ANALYSIS OF PROPOSED INVESTMENT 2.1.1.ESTIMATED CAPITAL EXPENDITURE (GBP) Please note that all estimated costs are subject to change, as the project develops. The estimated capital expenditure includes all costs related to land, licenses, connection to utilities and any training required. The detailed capital expenditure for the project is illustrated in Table 2.1 below. Capital Expenditure £ Machinery and equipment 95,274 Detail project engineering 4,191 Legal Fees - Assembly - Shipping, delivery and packaging - Taxes, insurance and commissioning - Fixtures, fittings and furniture 300 Office equipment 500 Vehicle 6,000 Total Estimated Capital Expenditure 108,265 Table 2.1: Total Estimated Capital Expenditure The detailed expenditure for the composition of machinery and equipment is illustrated in Table 2.2 below. It has been calculated based on initial cost estimates as provided by the manufacturers and engineers at Hi-Tech Agro Ltd in New Delhi, India. Machinery and equipment expenditure £ Flash Dryer System x 1 19,558 Rotary Tromell x 1 19,558 Shredder and Hammer Mill x 1 11,874 Holding Bin x 1 279 Briquetting Machine x 2 32,131 Dust Bag Filter x 1 7,683 Control Panel x 1 4,191 Spare Parts - Total Machinery and Equipment 95,274 Table 2.2: Composition of Machinery and Equipment Expenditure
- 7. 5 2.1.2.ESTIMATED PRODUCTION AND OPERATING EXPENDITURE (GBP) Please note the following tables illustrate estimated costs in the initial year of the project. The estimated production expenditure is outlined in Table 2.3 below, estimated operating expenditure in Table 2.4 and estimated gross revenues in Table 2.5. A breakdown of particulars can be found in Section 2.1.4. Manufacturing Overheads Unit Quantity Cost per Unit (£) Annual Cost (£) Raw material Tonne - - - Direct Labour 56,992 Taxes arising from direct labour 1,438 Electricity kWh per ton 163,944 0.13 21,313 Transportation (Fuel) Mile per ton 95,634 0.20 19,127 Depreciation 9,527 Total Manufacturing Overheads 108,397 Table 2.3: Total Estimated Production Expenditure Operating Expenditure £ Rent 12,000 Water 336 Salaries 42,191 Transportation 3,845 Maintenance and Repair 2,000 Telecommunications 288 Other 150 Total Operating Expenditure 60,810 Table 2.4: Total Estimated Operating Expenditure 2.1.3.ESTIMATED REVENUE (GBP) Item Unit Price per Tonne (£) Annual Production Total Gross Revenues (£) Grass Briquette 80 2,732 218,292 Table 2.5: Total Estimated Gross Revenues
- 8. 6 2.1.4.PARTICULARS Electricity will be the main utility required by the plant and it is anticipated that in order to produce one tonne of briquetting, 60 units of electricity will be required. An average cost of £.0.13 pence per kWh has been allocated for the duration of the project. Additionally contributing to the cost of production is the fuel required by an 18-26 tonne rigid vehicle, which has been included as a capital expenditure asset. It is envisaged that the raw material will be delivered by Leicestershire City Council to the plant and therefore transportation costs incurred will solely be as a result of delivery directly to the proposed primary client, Great Central Railway. In this instance, an average fuel cost of £0.20 pence per tonne of output transported, has been allocated for the duration of the project; assuming an average return distance of 35 miles. As highlighted in the basic assumptions, a total area for land and buildings of 1,000m2 have been recommended. This is made up of 400m2 for the flash dryer, gasifier, shredder, hammer mill, rotary tromell and holding bin; 200m2 for two briquetting presses; 200m2 for loading and storage and 200m2 for any additional requirements, e.g. office space, toilets and parking. An average rent of £12.00 per square metre has been allocated for this function. Although unlikely to be required in the cost of production itself, water as a separate utility will be required at a cost of £0.08 pence per litre. It is anticipated that two production supervisors will be employed in the first year of production on a 20 hour per week part – time basis, increasing up to 36 hours per week on a full time basis at full capacity. Additionally, two drivers on a part – time basis will also be employed; fundamentally it is beneficial not only in terms of logistics, but also significantly reducing the amount of Secondary Class 1 National Insurance Contributions payable. Annual transportation costs will be incurred on an MOT for the vehicle, Vehicle Excise Duty, insurance and maintenance e.g. wear and tear parts. While it has been assumed that plant maintenance and repair will be carried out by an external contractor, it is suggested that machine operators are trained in order to be able to carry out any basic maintenance required on the machinery. Unskilled labourers are also recommended to assist in the general cleaning and upkeep of the plant. Telecommunications are expected to be minimal although it is recommended that internet access is installed to communicate effectively with the SCCF London office and clientele.
- 9. 7 The economic benefits that arise as a result of the proposed project include employment for up to 12 individuals on full and part – time contracts. In addition, the project expects to generate £133,524 in tax revenue and encourage those at post-graduate level to be involved in an innovative and sustainable project in the clean energy markets; strengthening graduate employment in times of uncertain economic stability.
- 10. 8 3. FINANCIAL EVALUATION 3.1.1.PROFITABILITY ANALYSIS Using a set of projected income statements, Table 3.1 illustrates the profitability of the investment over a five year time scale. Activity Year 1 (£) Year 2 (£) Year 3 (£) Year 4 (£) Year 5 (£) Total (£) Revenue 218,592 270,108 345,870 424,926 444,690 1,704,186 Briquettes produced (tonnes) 2,732 3,294 4,118 4,941 4,941 20,026 Production Costs 108,397 131,677 147,848 198,490 200,246 786,658 Gross Profit 110,195 138,431 198,022 226,436 244,444 917,528 Operating Costs 60,810 66,935 74,951 84,790 86,208 373,696 Net Profit or (Loss) before Tax 49,385 71,496 123,071 141,645 158,236 543,833 Taxation 23,865 17,680 27,491 30,785 33,751 133,572 Net Profit or (Loss) after Tax 25,520 53,815 95,580 110,861 124,485 410,261 Cumulative Profit after Tax 25,520 79,335 174,915 285,776 410,261 Net Profit Margin (%) 12 20 28 26 28 Return on Investment (%) 24 51 90 104 117 Table 3.1: Summary of Projected Income Statements According to projected income statements, the project will begin to successfully generate profit in the first year of operation. Key financial ratios including net profit margin and return on investment show an increasing trend over the duration of the project. Significantly, the income statement and other indicators of profitability illustrate that the proposed project is financially viable. 3.1.2.BREAK-EVEN ANALYSIS Using the projected income statements, the break-even point of the project is estimated when the production plant begins to operate at full capacity in Year 4. Break Even = Fixed Costs/Sales – Variable Costs = 84,790/424,926 – 198,490 = 37%
- 11. 9 3.1.3.PAY BACK PERIOD The estimated capital expenditure and projected income statements, propose that the project’s initial investment will be fully recovered by the end of the third year of operation.
- 12. 10 4. REFERENCES http://www.leics.gov.uk/index/environment/waste/recycling_household_waste_sites/wastesite _lount.htm www.vansandtrucks.co.uk - (18-26 tonne rigid trucks) http://www.mysalary.co.uk/average-salary/Plant_Supervisor_9052 http://www.mysalary.co.uk/average-salary/Machine_Operator_21200 http://www.businesslink.gov.uk/bdotg/action/detail?itemId=1073790796&type=RESOURCE S http://uk.answers.yahoo.com/question/index?qid=20100118124208AAsYD9u http://www.roadtransport.com/roadlegal/11946/hgv-testing-mot-testing.html http://www.telegraph.co.uk/finance/yourbusiness/8013976/Haulier-insurance-premiums- slashed-with-pay-as-you-drive.html http://www.stwater-savewatersavemoney.co.uk/static/water-audit http://www.salarytrack.co.uk/average-driver-salary.html http://business.bt.com/phone-services/phone-lines-and-calling-plans/phone-line-and- broadband/ http://uk.answers.yahoo.com/question/index?qid=20100114091834AANY0xu http://www.hmrc.gov.uk/charities/guidance-notes/annex4/sectiona.htm