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Executive Summary
The growing utilization of plastics in industrial and consumer applications, combined
with increased consumer awareness surrounding solid waste recycling, has led to an
increased demand for recycled plastic resins and products. One of the fastest growing
types of collected plastic materials for recycling is polyethylene terephthalate ("PET")
from post-consumer beverage and water bottles. Replay Plastics will capitalize on the
opportunities in the recycled resin and packaging markets through two main divisions:
a Recycling Division and a Packaging Division.
The Company will create a PET cleaning and refining plant located in the western United
States (all 16 major North American PET recycling plants are currently located in the
eastern United States or Canada). Its initial capacity will be 46 million pounds, and it will
utilize post-consumer bottle feed stock presently collected in California, Oregon and
Washington States, which collect over 200 million pounds per year. The Company will
be vertically integrated, and use almost all of its recycled material in its Packaging
Division. Any surplus materials (clean flake) produced will be sold to outside companies.
The extruded sheet may then be sold to manufacturers, who will thermoform it into high-
visibility packaging or use it in other high value added manufacturing operations. The
strapping will be sold to companies who ship large packages or pallets, such as the
lumber milling industry. The Company currently has commitments available from
customers to purchase all of the product produced.
MANAGEMENT
Ben Braddock, President, has a 30-year history of experience encompassing all aspects of
Polymer Raw Material, Plastic Conversion Methods, and Venture Development. He has
founded successful ventures in the plastic converting industry, and assisted in the launch
of five plastic converting manufacturing plants. Sam McGuire, Executive VP and COO,
is a graduate Engineer with over 20 years experience in the post-consumer plastics
recycling industry and is the inventor of the primary cleaning & refining technology used
in the process for this project. He has received a patent for his technology and has been
directly involved in over twenty-five major post consumer plastics recycling projects.
Carl R. Smith, CFO, has over 30 years investment and merchant banking and
management experience. He has assisted in raising over $500 million and served as board
member and/or officer in over 40 public and private companies.
FINANCIAL SUMMARY
After a four month start-up period to build the recycling and packaging facilities, buy
equipment, and incorporate the business, Replay Plastics will begin a quick turnaround of
product. Sales will begin in May, and with over $15 Million in sales the first year, we
will see a first year net profit of $2.3 Million. The owners are investing $500,000 each,
for a total of $1.5 Million, and are securing an $800K long-term loan.
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1.1 Objectives
1. Sales passing $15 million in first year, $31 million in year 2, growing to $43 million.
2. Gross margin of 35% or more in first year, 45% in second year then 50% or more.
3. Net profit of 13% in year one, then exceeding 20% annually starting in year two.
1.2 Mission
Marketing - Contractual arrangements for the sale of virtually all initial production.
Replay is confident that it has secured good availability of low cost post-consumer
PET bottles (feed stock) derived from post-consumer beverage bottles from
California based recycling collectors, and has back up sources identified.
Replay will use a proven, patented technology that was developed by one of its
principals for the cleaning and recycling phase. The extrusion division will employ
commercially proven technology - the industry is employing unique recycled PET
technology which is used by prominent eastern U.S. manufacturers of PET
extrusions.
The markets that have been identified are primarily in the western U.S., which will
provide a distinct advantage to the Company because of freight costs and delivery
timing.
The Company has assembled a world class management team with proven ability and
direct experience in the Company's market segments.
The Company may not be able to sell all of its production capability
Company Summary
The Company will capitalize on the opportunities in the recycled resin and packaging
markets through two main divisions: a Recycling Division and a Packaging Division.
Recycling Division
Using a patented process, the Company will create a PET cleaning and refining plant
located in the western United States; we have chosen this region because all 16 major
North American PET recycling plants are currently located in the eastern United States or
Canada, despite western states' favorable recycling attitudes among consumers. Its initial
annual capacity will be 46 million pounds and it will utilize bottle feed stock from
California, Oregon and Washington States, which collect over 200,000,000 pounds per
year. The Company will become totally vertically integrated, and use all or almost all of
its recycled material in its Packaging Division. Any surplus material produced will be
sold to outside companies.
Packaging Division
We will create a plant (actual facilities to be shared with the Recycling Division) to
manufacture extruded plastic roll stock sheet or high-strength strapping, employing state-
of-the-art technology developed to utilize recycled PET resin.
The extruded sheet will be primarily sold to thermoformers who will convert it into high
visibility packaging, as well as laminators and fabricators. The strapping will be sold to
commercial users for use as package or pallet strapping.
Replay Plastics is owned by the initial founders, B. Braddock, S. McGuire and C. Smith,
who are the proposed three executives of the operating entity. The plan was conceived
and developed by these individuals, with the intent to apply their extensive experience
and contacts in the industry to building a successful profitable corporation.
After a thorough investigation, Replay has found that Company A is able to source or
supply the required equipment at considerably lower cost than any other company from
which a quote was available. Mr. McGuire has disclosed that Company A has included a
smaller than normal margin in their quote on goods they will manufacture, to cover
overhead, contingency and profit which might result in a small benefit to him. They have
agreed to source all of the equipment possible with no added margin.
Replay has concluded that the savings available outweigh any other consideration and
that we will purchase the cleaning and refining equipment from Company A.
Our start-up expenses are budgeted at $210,000, which is mostly for on-site contractor
services during facility preparation. $50,000 has been set aside for legal and accounting,
$25,000 for special consulting that may be required during start up and $50,000 each for
local engineering and lab equipment and supplies. $30,000 has been set aside as a
contingency for the start up period.
Our largest Start-up Requirement is the building of the recycling and extrusion facility.
Its final value at completion is listed below as a long-term asset of $3,620,000 (excluding
expensed items like consultants and engineering listed above). Aside from the building
itself, we need $25,000 in machinery and fixtures, $500,000 of inventory (plastic bottle
feed stock) and cash to cover us through the initial year.
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START-UP FUNDING
Liabilities
Current Borrowing $0
Capital
Planned Investment
Founders $1,500,000
Investor $2,700,000
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START-UP
Requirements
Start-up Expenses
Consultants $25,000
Other $0
Products
Replay Plastics will utilize two processes in the same facility to produce:
Cleaned and recycled plastic PET flake (RPET), recovered from post-consumer
beverage bottles and manufacturing waste produced by its sheet customers
Extruded PET high-strength strapping for securing large packages or pallet loads;
each using 100% RPET produced in-house
High strength PET packaging strapping is used to secure packages or pallets in such
industries as lumber milling and corrugated and other paper production.
Using a patented process, Replay will clean and refine the PET material from the post-
consumer bottle stock and post-industrial manufacturing waste. The PET flake resin
produced will be extruded into roll stock sheet or high-strength strapping.
Although the Company expects to convert all of its bottle feed stock into extruded
products, any surplus flake will be sold to outside manufacturers.
While quality and delivery are important factors to our potential clients, price is most
often the determining factor in a buying decision. Good-quality packaging products
manufactured from recycled (less expensive) resins, as close as practical to the end
customer's operations, will be most competitive and achieve a significant market
share. These factors have helped to determine the business parameters of Replay Plastics.
3.3 Sourcing
The Company has entered negotiations with a California based source of post-consumer
bottles and is confident that sufficient volumes are available on a contract basis from this
source to satisfy its requirements. In addition, the Company intends to purchase
production waste from its sheet customers and blend it into its feed stock.
Currently, the majority of the post-consumer PET bottles collected in California, Oregon
and Washington are exported to China. The Chinese have absorbed the amounts surplus
to the use in North America. Their interest has kept the industry in the position of being
able to maintain a steady price range for this bottle stock. A significant percentage of all
sales of such bottle stock are managed by Plastics Recycling Corporation of California
(PRCC), an industry funded marketing agency which operates similarly to a co-operative.
They accept bids from potential buyers on behalf of the firms which act as
"consolidators," which accumulate stocks from the smaller, individual bottle-recycling
depots. Some amount of the available stocks are regularly bought by recyclers in eastern
North America who focus on the carpet manufacturers who use RPET resin in their
process, but the high cost of transport from the western U.S. makes eastern sources more
desirable.
Replay has a good relationship with Company B, one of the larger consolidators in
California. Company B has indicated a desire to contract to supply Replay with all of its
raw material needs. They prefer to deal with a local consumer such as Replay, rather than
the uncertainty and extra preparation requirements of the export market.
There are other sources of post-consumer feed stock known to Replay, and we are
confident that we will have sufficient materials available for our production needs.
3.4 Technology
Sam McGuire, a key member of our Management team, is one of the original innovators
of cleaning and refining technology for post-consumer PET, and we will be utilizing his
patented process in our recycling facility. Sam has worked in the establishment and
operation of facilities employing similar technologies over the last several years.
On the manufacturing side, Management has been an integral part of the advancement of
industry practices over the last twenty years or so, and includes in their knowledge base
most, if not all, of the state-of-the-art available equipment and manufacturing techniques.
In volume, PET is currently the number one recycled resin. Supply of recycled PET is in
excess of 800 million pounds per year. This figure is expected to grow, reaching over 1
billion pounds during the next few years. The plastics industry has developed new
markets and applications for recycled resins from both post-consumer and post-industrial
sources.
PET leads the recycled recovered resins as the most visible and valuable, and its use is
increasing. Of the total 3.7 billion pounds of PET consumed in 1997, just 16% was from
recycled sources. Of the more than 90 billion pounds of plastics produced annually in the
United States, less than 5% is from recycled sources. Plastics, after aluminium, represent
the second highest value material in the waste stream and have the highest projected
growth rate.
Markets and uses for recycled plastics are rapidly expanding. Plastic containers are being
collected at the curb for recycling in nearly 500 communities, representing more than 4
million households. U.S. demand for recycled plastic will continue to expand and new
markets will develop as technologies permit the efficient segregation and reprocessing of
high-purity resins. Improved quality of resins, environmental issues and higher prices for
virgin resin will contribute to growth.
Packaging is expected to be the largest market segment for recycled plastics, with sheet
and lumber following. Surveys indicate that Americans are increasingly willing to collect
and separate discarded packages, foregoing a degree of convenience to make products
more disposable, and even paying a premium for a recycled item.
Increasingly, communities are refusing to consider incineration until every effort is made
first to recycle; public sentiment is strongly in favor of products that can be recycled or
are made of recycled materials. In recent years, the household recycling rate of PET
bottles has more than doubled to 30% of all PET soft drink bottles sold. In fact, PET's
recycling rate is the fastest growing among all beverage containers. The future of PET
recycling is even brighter than it has been in the past. PET intrinsic scrap value is second
only to aluminium among container materials. The plastics industry has launched a
research and development program aimed at increasing PET recycling. According to the
U.S. Environmental Protection Agency (EPA), plastic soft drink bottles account for
approximately 2% of the solid waste discarded in America. The EPA has set a national
goal to recycle 25% of the municipal solid waste stream and the industry is committed to
achieving its share of that important goal.
The recycling industry intends to accelerate the rate of plastic recycling as part of its
commitment to develop solutions to the solid waste problem. Industry analysts have
projected that 50% of all PET containers will be recycled by the year 2007. More plastics
will be recycled annually than any other recyclable material. Replay believes a significant
answer to America's waste problem lies in creating high value, recycled thermoformable
sheet and other extruded products for the packaging market.
Although more than 200 million pounds of PET post-consumer materials are collected in
the western United States each year, there is presently no local cleaning and refining
facility converting the bottles into resins suitable for re-manufacturing.
Originally, recycled PET (RPET) was used primarily in the carpet fiber industry, which
is located along the eastern seaboard. The early development of the RPET industry was
therefore focused in the eastern USA, with eastern states adopting the first bottle deposit
laws that resulted in collection of post-consumer bottles that can be recycled. Recently,
California, Oregon and Washington have adopted bottle deposit programs, and
accumulation of recyclable materials in those states has begun. With all of the cleaning
and recycling plants and the majority of consumers traditionally located in the eastern
part of the country, development of consumers of recycled flake and down-line products,
such as film and sheet, has been slow to develop in the West. A strong demand for post-
consumer bottles from Asia has prevented the buildup of inventories and reduced the
pressure for the collection industry to find or develop western markets.
RPET Flake
Total market demand is reported as 1.2 billion pounds per year. Since only 800
million pounds are processed in the USA, consumers are forced to look at wide spec
virgin PET (virgin resin that is outside of spec but still usable) which is normally sold at a
discount to virgin prices, but still higher than recycled (RPET) pricing. Some
manufacturers are also forced to import materials from Mexico, India and South America.
Some converters are being forced to use more expensive virgin resin.
The current pricing for virgin resin is $0.65-0.73 per lb. and $0.42-.53 for RPET
flake. The spread between the two has traditionally been maintained at approximately
$0.20 per lb.
The total reported market of extruded film and sheet is 872 million pounds, of
which identified industry usage of RPET is 160 million pounds.
The reported market demand (to replace virgin PS, PVC and PET) if RPET was available
is estimated at 1 billion pounds.
RPET Strapping
The total reported domestic plastic strapping market is 240 million pounds. Of this
market, industry usage of virgin polypropylene is 132 million pounds and of PET is 108
million pounds.
It is generally accepted in the industry that less expensive strapping made from RPET
could not only take over the polypropylene strapping market, but convert as much of the
much larger and more expensive steel strapping market as RPET strapping was available.
California: 62
Oregon: 8
Washington: 9
California: 73
Oregon: 10
Washington: 12
All information is based on industry research,and data provided by the American Plastics
Council.
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MARKET ANALYSIS
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your own business plan.
Currently there is no direct competition in the western United States for either of the two
divisions of the Company. Any production in the trading area remains captive and not
available to our target market.
The ability of the Company to obtain a source of post-consumer bottle stock is an integral
component of the strategy to vertically integrate operations and manufacture products in
demand by western consuming industries. Without the cleaning and refining division, it
would be difficult to source sufficient RPET flake resin at costs that would allow the
Company to be competitive.
Equipment costs are high and industry specific, resulting in a high exit cost.
Because of the scarcity of RPET flake, entrants may be forced to establish cleaning and
refining facilities for post-consumer bottles. The equipment required is costly and very
industry specific. It would not easily be re-sold as a system.
There is a market for used extrusion equipment, which normally sees 60-70% of new
value being realized.
Currently in the western United States, there is no direct competition for cleaning and
refining post-consumer or post-industrial PET. Nor is there any non-captive extrusion of
roll stock sheet.
Kama, Pittsburgh, PA
Klockner, VA
In a news release dated September 10, 2004, Itec Environmental Group, Inc. announced
their intention to open a PET and High Density Polyethelene (HDPE) recycling operation
in Riverbank, CA (east of San Francisco). The news release states that the Company's
new and yet unproven technology lets it work with bottle streams that others have to
reject as too dirty. This Company is familiar to our Management, and is not considered a
significant factor in any of our markets.