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The Company will create a PET cleaning and refining plant located in the Eastern States.
Its initial capacity will be 46 million pounds, and it will utilize post-consumer bottle feed
stock presently collected in Orissa, Bihar and West Bengal 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.
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
• 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 India
manufacturers of PET extrusions.
• 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 Eastern India; we have chosen this region because all 3 major states PET
recycling plants are currently located in the eastern India, 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 Orissa, Bihar, West Bengal 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.
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.
Start-up Funding
Assets
Non-cash Assets from Start-up $4,145,000
Cash Requirements from Start-up $645,000
Additional Cash Raised $0
Cash Balance on Starting Date $645,000
Total Assets $4,790,000
Capital
Planned Investment
Founders $1,500,000
Investor $2,700,000
Additional Investment Requirement $0
Total Planned Investment $4,200,000
Start-up
Requirements
Start-up Expenses
Legal & Accounting $50,000
Stationery etc. $5,000
Consultants $25,000
Lab Equipment $50,000
Local Engineering $50,000
Misc Start up $30,000
Other $0
Total Start-up Expenses $210,000
Start-up Assets
Cash Required $645,000
Start-up Inventory $500,000
Other Current Assets $25,000
Long-term Assets $3,620,000
Total Assets $4,790,000
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 roll stock sheet PET.
• 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
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
India, 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 India 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
INDIA. Environmental Protection Agency (EPA), plastic soft drink bottles account for
approximately 2% of the solid waste discarded in India. 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 India'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 Eastern INDIA 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 INDIA, with eastern states adopting the first bottle deposit laws that resulted in
collection of post-consumer bottles that can be recycled. Recently, Orissa,Bihar and West
Bengal 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.
• Orissa: 62
• Bihar: 8
• West Bengal: 9
Orissa: 73
Bihar: 10
West Bengal: 12
All information is based on industry research,and data provided by the India Plastics
Council.
Market Analysis
Year 1 Year 2 Year 3 Year 4 Year 5
Potential Customers Growth CAGR
Western PET Buyers 1% 79 80 81 82 83 1.24%
Western HDPE Buyers 1% 95 95 95 95 95 0.00%
Total 0.57% 174 175 176 177 178 0.57%
Currently there is no direct competition in the Eastern India 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.
There has been a strong demand (sellers' market) for our products for several years.
Traditional buying patterns in this industry are based on quality, price, reputation of
manufacturer, freight costs, delivery times and proximity to markets. During such a
sellers' market, buying patterns are often more influenced by availability.
Replay Plastics' competitive edge rests with its proximity to its target markets, as well
as the industry knowledge, reputation and contacts of its senior management. Their many
years of direct experience have led them to identify this unique opportunity and put
together the technology and sources to take advantage of it. Their reputation in the
specific market segment will result in the achievement of long-term commitments for our
production.
The sales forecast is based on the assumption that we will sell all of the highest
value extruded products that we can produce. In addition, it is expected that there will be
amounts of refined flake surplus to our extrusion capacity. This flake will be sold to
other manufacturing companies. There is a continuing strong demand for flake and
extruded products made from recycled PET.
Cost of raw materials includes 24% allowance for price variation and 15% non-
recoverable waste.
Sales Forecast
Year 1 Year 2 Year 3 Year 4 Year 5
Unit Sales
Recycled Flake PET 20,533,600 12,833,900 0 0 0
Extruded Roll Stock Sheet 8,341,400 28,874,600 30,800,000 30,800,000 30,800,000
Extruded Strapping 0 4,491,500 15,400,000 15,400,000 15,400,000
Total Unit Sales 28,875,000 46,200,000 46,200,000 46,200,000 46,200,000
Sales
Recycled Flake PET $9,240,120 $6,064,018 $0 $0 $0
Extruded Roll Stock Sheet $5,838,980 $21,222,831 $23,769,900 $24,958,395 $26,206,315
Extruded Strapping $0 $4,266,925 $15,400,000 $16,170,000 $16,940,000
Total Sales $15,079,100 $31,553,774 $39,169,900 $41,128,395 $43,146,315
5.5 Milestones
Because the Company is a start-up, our milestones will surround the establishment of
continuing facilities, confirmation of sourcing and sales contracts, equipment acquisition
and installation, staffing and training, and initiating production.
6.1 Organizational Structure
Financial Plan
Once the equipment arrives and is installed, production ramps up rather quickly, with
sales beginning in the sixth month after funding. Positive cash flow and net profit are
achieved within the first year.
• Replay has allowed for 30 days to collect receivables due to knowledge and
experience with customers in the industry.
• Inventory turnover is predicted at 12 times, which is extremely conservative.
• The personnel burden includes contribution by the Company to employee health
care.
• We have allowed for Accounts Receivable financing of 70% at an interest rate of
12% per annum.
• It is assumed that additional extrusion lines will be added in the second year, with
down payments of 33% at time of order and balance paid at time of shipment (see
Cash Flow for details). These will be purchased as long-term assets out of the
cash flows of the business.
• General annual growth rates of 5% have been assumed on all sales prices and
material and labor costs.
General Assumptions
Year 1 Year 2 Year 3 Year 4 Year 5
Plan Month 1 2 3 4 5
Current Interest Rate 12.00% 12.00% 12.00% 12.00% 12.00%
Long-term Interest Rate 8.00% 8.00% 8.00% 8.00% 8.00%
Tax Rate 30.00% 30.00% 30.00% 30.00% 30.00%
Other 0 0 0 0 0
With fixed costs of about $184,000 per month in the first year, and variable unit costs at
roughly 52% of prices, we need to produce and sell 715,963 units per month to break
even. We will far exceed the break-even point in our first full month of sales.
Break-even Analysis
Assumptions:
Average Per-Unit Revenue $0.52
Average Per-Unit Variable Cost $0.27
Estimated Monthly Fixed Cost $184,160
The rapid growth of sales in year one and two is due primarily to increase in capacity
over that period, as we add new extrusion equipment. The plan assumes the sale of all
production capacity as it is added. The favorable gross margin projections are in part due
to the vertical integration of the two processes. Our Managements' ability to handle all
initial sales and marketing allows us to predict virtually no sales or marketing expense.
7.6 Business Ratios
Standard business ratios are included in the following table, along with comparison ratios
for the Thermoplastic Materials industry (SIC Code 2821.02). The ratios show a plan for
healthy growth. Our return on investment increases each year and will allow for new
equipment to be financed internally should the Company choose to do so. While the
ratios indicate rapid growth and profitability, it may be explained in part by the fact of the
integration of three business sections into the one facility. Our ratios differ significantly
from the rest of the industry because of our ability to use low-cost recycled materials to
manufacture our products.
Ratio Analysis
Year 1 Year 2 Year 3 Year 4 Year 5 Industry Profile
Sales Growth 0.00% 109.26% 24.14% 5.00% 4.91% 9.27%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Gross Margin 37.07% 48.05% 54.44% 54.63% 54.43% 28.02%
Selling, General & Administrative Expenses 22.36% 22.63% 24.36% 24.16% 24.37% 15.89%
Advertising Expenses 0.04% 0.17% 0.27% 0.38% 0.48% 0.17%
Profit Before Interest and Taxes 22.41% 35.98% 42.75% 42.80% 42.45% 2.46%
Main Ratios
Current 2.43 3.33 5.11 6.24 7.46 1.79
Quick 2.08 2.84 4.66 5.79 7.01 1.22
Total Debt to Total Assets 25.54% 17.56% 14.67% 13.05% 11.56% 57.88%
Pre-tax Return on Net Worth 52.57% 100.68% 111.99% 102.08% 91.40% 2.22%
Pre-tax Return on Assets 39.14% 83.00% 95.56% 88.75% 80.84% 5.28%
Activity Ratios
Accounts Receivable Turnover 7.60 7.60 7.60 7.60 7.60 n.a
Collection Days 29 36 43 47 47 n.a
Inventory Turnover 15.76 18.81 15.43 15.28 15.36 n.a
Accounts Payable Turnover 7.76 12.17 12.17 12.17 12.17 n.a
Payment Days 27 27 28 29 29 n.a
Total Asset Turnover 1.78 2.32 2.24 2.08 1.91 n.a
Debt Ratios
Debt to Net Worth 0.34 0.21 0.17 0.15 0.13 n.a
Current Liab. to Liab. 0.67 0.73 0.78 0.81 0.85 n.a
Liquidity Ratios
Net Working Capital $2,064,973 $4,070,396 $8,242,620 $11,018,388 $14,298,960 n.a
Interest Coverage 55.80 208.44 348.43 422.50 519.44 n.a
Additional Ratios
Assets to Sales 0.56 0.43 0.45 0.48 0.52 n.a
Current Debt/Total Assets 17% 13% 11% 11% 10% n.a
Acid Test 0.70 0.46 2.09 3.21 4.44 n.a
Sales/Net Worth 2.39 2.81 2.63 2.39 2.16 n.a
Dividend Payout 0.00 0.38 0.68 0.81 0.78 n.a
The plan calls for maximum production rate for flake in the sixth month from funding.
Approximately one third of that production will be converted into extruded sheet
beginning approximately at the same time. A second sheet extruder, which will also
consume one third of the flake produced, is planned to be added at the end of year one,
coming on line mid year two. A third extruder, which is planned to produce high-strength
strapping, is expected to come on line late in year two. By the beginning of year three, it
is expected that all of the 46,200,000 lbs. of RPET cleaned & recycled annually will be
converted into extruded products. Up until this time, excess flake produced will be sold to
other extruder companies.
The plan assumes a 5% increase in the sales price of all products and a 5% increase in the
cost of raw materials and labor in each of years 2 through 5.
The result of the above is rapid growth in revenue and profit through year three, and
moderate growth in years four and five, assuming no expansion of capacity during that
time.
Management is indifferent as to the question of looking to sell the Company after 4-5
years or retaining ownership and the resulting annual cash flow. They will look to the
investors for their direction and will generally support their wishes.
Recent information on private sales of similar industry companies has indicated that
transactions under $25 million have averaged 5.3 times EBITDA, while transactions in
the range of $25-250 million have averaged over 7 times EBITDA.
Such multiples would put the potential sales price of Replay, after 4-5 years of operation,
in excess of $100 million based on current projections.