1. PROJECT SUMMARY
The purpose of the project is to organize an enterprise for the production of frame-modular buildings in the city of Yaroslavl. Modular buildings can be used as change houses, mobile office buildings, trade pavilions, country houses, as well as full-fledged residential buildings. The advantages of these buildings are:
- mobility – the building can be disassembled and transported up to ten times
- low cost – the use of economical materials in the construction makes it possible to reduce the cost compared to wooden or stone (brick, gas-block) buildings; since the modules are produced according to standard designs, and the buyer orders a finished product from the catalog, a minimum of work is carried out directly at the construction site, which also reduces the cost of construction and its time
- the use of standard modules allows you to achieve cost reduction through mass production, as well as reduce the cost of warehousing finished products, which allows you to increase the profitability of the enterprise
Project performance indicators are given in Table. one.
Table 1. Key performance indicators of the project
| Payback period (PP), months | 6 | |
| Discounted payback period (DPP), months | 6 | |
| Net present value (NPV), rub. | 2 772 740 | |
| Return on investment ratio (ARR), % | 25.64% | |
| Internal rate of return (IRR), % | 24.73% | |
| Yield Index (PI) | 1.35 |
2. COMPANY AND INDUSTRY DESCRIPTION
Since the project relates to building infrastructure, it is advisable to consider such interconnected markets as: the construction market, the building materials market and the market for translucent structures.
According to IndexBox, the building materials market in the first half of 2016 was subject to the following influences:
- reduction in residential construction (-16% compared to the same period last year)
- some growth in non-residential construction (+3% compared to the same period last year)
- decrease in production of basic building materials (-8% compared to the same period last year)
- growth in the production of finishing materials (+5% compared to the same period last year)
- decline in investment in construction (-1.6% compared to 2015)
Since December 2014, there has been a permanent decline in sales in the primary housing market. During this time, sales decreased by about 30-35%. The largest decline in housing construction was observed in February 2016, after which there is a gradual increase in this indicator. The decline in sales was primarily caused by a decrease in the number of people who bought real estate with their own savings. To improve the investment background in the industry, the state has taken a number of measures to stimulate the housing market (subsidy programs).
In non-residential construction, the volume of commercial real estate construction decreased, while the share of agricultural and industrial buildings increased (Figure 1).
Against the background of a decrease in real incomes of the population, there is a shift in demand towards construction materials of a low price segment.
Figure 1. The structure of the commissioning of non-residential real estate by types in the 1st quarter of 2015 – 1st quarter 2016 (Rosstat data, IndexBox)
Traditionally, more than 60% of investment in fixed assets in Russia has been in the construction industry. At the same time, there is an upward trend in this indicator in a crisis. In 2015, 5,945.5 billion rubles were invested in the construction industry. According to the forecasts of the Ministry of Economic Development, a positive value of investment indicators in the industry should be expected already in 2017; expected increase in the indicator in 2017-2019 – 2.7% per year.
The driver of growth (decrease in the rate of decline) in sales of building raw materials and materials was the growth in the volume of repair work against the backdrop of a decrease in construction volumes.
Figure 2. Dynamics of production of basic building and finishing materials in the 1st half of 2015 – 1st half of 2016 (data from Rosstat, IndexBox)
The share of imported components (primarily PVC profiles) in the plastic window market (according to O.K.N.A.-marketing data) decreased significantly – from 35% in 2006 to 2% in 2015. According to experts, the most likely scenario for the development of the market in 2016 is its fall within 15%.
Competition in the industry today is relatively low due to the small number of players and established spheres of influence.
Figure 3. Dynamics of the plastic windows market in Russia in 2006-2015, mln. m
According to experts, the following trends should be expected in the coming years:
- the most attractive segment for manufacturers of building materials are building materials that can be used for repairs – repairs are carried out by the population all the time, regardless of the state of the economy; demand is shifting towards the low price segment;
- the weakening of the national currency will lead to an increase in the cost of both equipment used in construction and the production of building materials, and the building raw materials and materials themselves; this means a significant increase in the competitiveness of domestic producers;
- demand for construction and finishing materials will be supported by the public sector;
- 2017 will be the heaviest year in the residential real estate market, after which the situation is expected to improve.
Thus, given the shift in demand towards budget solutions, modular-frame construction seems to be a promising line of business.
Production is supposed to be located in Yaroslavl, the sales market is the Central Federal District. The target audience of the project is very wide: trade organizations (small and medium-sized businesses), individuals with summer cottages, individuals with a relatively low income who need housing, and so on.
Yaroslavl is a city in the central part of the Russian Federation with a population of 606 thousand people. It is an important transport hub. The Central Federal District has a population of more than 39 million people, a relatively small area and a high population density. Thus, the market has a high capacity and a potentially high level of demand.
3. DESCRIPTION OF GOODS AND SERVICES
The company produces frame-modular buildings that have a wide range of applications:
- trade pavilions
- checkpoints
- change houses on construction sites or for the protection of facilities
- country houses
- residential buildings
From ready-made modules, you can assemble a building of almost any configuration; The maximum number of storeys is two storeys. Any module can be equipped with a heating, water supply and sewerage system. The products of the project have no restrictions on the scope of application.
Modules are made to order in accordance with standard drawings. If necessary, minor modifications of the modules are made in accordance with a specific project. Ready-made solutions are placed in the catalog on the company’s website. Depending on the configuration and area of the building, the cost of 1 m 2 varies; the minimum cost is 7,500 rubles. for 1 m 2 . The cost includes production, delivery and installation of the building. Finishing work, connection to communications, etc. are not included in the price. The project does not provide for such work.
Table 2. Characteristics of modular houses
| Structural element | Characteristic |
| frame | Metal channel 100x50x3 mm, pine beam 100×50 mm (racks, floor and ceiling logs), bar 50×50 (batten) |
| Roof | Gable, metal tile |
| Floor | Draft – board 25×100 mm, 25×150 mm; finishing – chipboard 16 mm |
| insulation | Foil penofol (2 layers), mineral wool (50 mm) |
| Floor waterproofing | Hydroisol |
| Exterior finish | Painted profiled sheet S-8 |
| Interior decoration | chipboard |
| Window | PVC 60 mm, double glazing 24 mm |
| Entrance door | Metal, lever lock, made in Russia |
| Interior door | DG 21-8, laminate |
Table 3. Range of ready-made solutions and selling price
| No. | Name / purpose | Area, m 2 | price, rub. per unit |
| one | Checkpoint / traffic police post / shopping pavilion | 16.8 | 135 118 |
| 2 | Change house / trade pavilion | 28.8 | 250 675 |
| 3 | Trade pavilion / house | 40.3 | 335 296 |
| 4 | House number 1 | 50.4 | 435 456 |
| 5 | Residential house №2 | 60.0 | 518 400 |
| 6 | Residential house №3 | 72.2 | 587 277 |
4. SALES AND MARKETING
The target audience of the project can be segmented as follows:
- state-owned enterprises and structures (Ministry of Emergency Situations, traffic police, manufacturing and construction enterprises)
- construction (non-state) enterprises of various types (residential and commercial construction, road construction, energy, etc.)
- retailers
- car parks
- manufacturing companies,
- individuals with summer cottages, 35 – 60 years old
- individuals with an income level of up to 60 thousand rubles. per month, not provided with their own housing
The promotion of the company’s products is carried out in two directions: online and offline. For online promotion, a company website is created, social networks are actively used. Contextual and targeted advertising is used.
For offline promotion, product samples are exhibited at the two largest construction markets in the city. Each exhibit has a detailed description with the price and contact details of the production.
Sales representatives work with commercial and government organizations. They negotiate, conclude supply contracts, supervise the company’s participation in tenders and auctions.
Applications are accepted by phone and through the website. If necessary, the customer can visit the production. To clarify the details of the order, drawing up design estimates, a technical specialist of the enterprise leaves for the customer.
As an additional service, the company provides contacts of contractors performing engineering systems installation and finishing works.
The level of prices for the company’s products is at the average market level. Market analysis shows that the level of competition in the region under consideration is low. In the entire Central Federal District there are no more than ten manufacturers of similar products, in Yaroslavl – only one. The competitiveness of the enterprise is ensured by the high speed of work, territorial proximity and reasonable prices.
Demand has a pronounced seasonality, which largely coincides with the course of the construction season, but has a slightly longer duration due to the fact that frame-modular buildings can be produced and assembled at lower temperatures than, for example, masonry work.
Table 4. Planned sales volumes, units/month
| PRODUCT / SERVICE | AVERAGE PLANNED SALES VOLUME, units/month | PRICE PER UNIT, rub. | REVENUE, rub. | VARIABLE COSTS, rub. | |
| one | Checkpoint / traffic police post | 7 | 135 118 | 945 825 | 762 762 |
| 2 | Change house / trade pavilion | 12 | 250 675 | 3 008 102 | 2 211 840 |
| 3 | Trade pavilion / house | 7 | 335 296 | 2 347 072 | 1 805 440 |
| 4 | House number 1 | 3 | 435 456 | 1 306 368 | 967 680 |
| 5 | Residential house №2 | 2 | 518 400 | 1 036 800 | 768 000 |
| 6 | Residential house №3 | one | 587 277 | 587 277 | 435 020 |
| Total: | 9 231 444 | 6 950 742 |
5. PRODUCTION PLAN
Production is located on an open area of the production area on the outskirts of the city. Since there are no special requirements for the organization of the production process, its implementation outdoors is permissible. The area of the production site is 250 m2 . Also on the territory there is a rented office space for sales and administrative staff. The area of the office premises is 30 m2 .
The manufacturing process also does not require specialized equipment; purchase of various hand tools. Production is carried out in accordance with the developed standard drawings of the modules and the customer’s wishes for the configuration of the building. Production time is 4-8 weeks depending on the configuration and number of modules.
Finished products are stored in a specially designated area of the production site until the moment of installation. The advantage is that the modules can be stacked, which saves space.
Delivery to the installation site is carried out by special vehicles. Delivery within the Yaroslavl region is included in the cost of the module. Shipping costs for longer distances are calculated individually.
Installation involves fastening the modules together at the construction site. Usually the duration of installation is no more than 3-4 days.
6. ORGANIZATIONAL PLAN
To implement the project, a limited liability company is organized, the founder acts as a director. To do this, he has all the necessary knowledge and skills in the field of entrepreneurship and construction. The initiator of the project has a higher education in construction and experience in the field of construction infrastructure. Project documentation is developed by the project initiator.
The duration of the preparatory stage is minimal. Given that the project documentation has already been prepared and approved by the time the project starts, the preparatory stage includes the purchase of a tool, recruitment and development of a website.
Table 5. Staffing and payroll
| Position | Salary, rub. | Quantity, pers. | FOT, rub. | |
| Administrative | ||||
| one | Accountant | 4 500 | one | 4 500 |
| 2 | Director | 45 000 | one | 45 000 |
| Industrial | ||||
| 6 | Production foreman | 28 000 | one | 28 000 |
| 7 | Assembly foreman | 28 000 | one | 28 000 |
| eight | assembly builder | 25 000 | 3 | 75 000 |
| nine | Installer | 25 000 | 2 | 50,000 |
| Trade | ||||
| thirteen | Sales Manager | 22 000 | one | 22 000 |
| fourteen | Sales Representative | 30,000 | one | 30,000 |
| Auxiliary | ||||
| eighteen | Storekeeper | 23 000 | one | 23 000 |
| nineteen | Loader | 15,000 | one | 15,000 |
| Total: | 320,500.00 RUB | |||
| Social Security contributions: | $96,150.00 | |||
| Total with deductions: | RUB 416,650.00 |
Figure 4. Organizational structure of the enterprise
7. FINANCIAL PLAN
The project has no time limit. A period of five years was chosen as the financial planning horizon. The financial plan takes into account all the income and expenses of the project. Income refers to revenue from operating activities; income from investment activities and the sale of assets are not taken into account.
The amount of investment costs – 2,050,000 rubles. (Table 6), of which the project initiator’s own funds are 1.7 million rubles. The lack of funds is planned to be covered by attracting a bank loan at 18% per annum for a period of 24 months. Credit holidays – three months.
Table 6. Investment costs
| NAME | AMOUNT, rub. | |
| The property | ||
| one | office equipment | 100,000 |
| Equipment | ||
| 2 | Tool kit | 700 000 |
| Intangible assets | ||
| 3 | Website development | 150 000 |
| working capital | ||
| 4 | working capital | 1 100 000 |
| Total: | 2 050 000 ₽ | |
| Own funds: | RUB 1,700,000.00 | |
| Required borrowings: | 350 000 ₽ | |
| Bid: | 18.00% | |
| Term, months: | 24 |
Variable costs include the cost of acquiring the materials necessary for construction and installation (Table 7). Fixed costs: rent of a production site, office, advertising, utility bills, depreciation and others (Table 8). The amount of depreciation is calculated using the straight-line method, the useful life of fixed assets and intangible assets is five years. A detailed financial plan is given in App. one.
Table 7. Variable costs
| PRODUCT / SERVICE | COSTS PER UNIT, rub. | TRADING MARGIN, % | UNIT COST, rub. | |
| one | Checkpoint / traffic police post | 108 966 | 24% | 135 118 |
| 2 | Change house / trade pavilion | 184 320 | 36% | 250 675 |
| 3 | Trade pavilion / house | 257 920 | thirty% | 335 296 |
| 4 | House number 1 | 322 560 | 35% | 435 456 |
| 5 | Residential house №2 | 384 000 | 35% | 518 400 |
| 6 | Residential house №3 | 435 020 | 35% | 587 277 |
| Total: | 2 262 222 ₽ |
Table 8. Fixed costs
| NAME | AMOUNT IN MONTH, RUB | |
| one | Rent (site) | 10,000 |
| 2 | Rent (office) | 18 000 |
| 3 | Communal payments | 9000 |
| 4 | Internet and communication | 4 500 |
| 5 | Hosting and site support | 1500 |
| 6 | Advertising | 35,000 |
| 7 | Depreciation | 15 800 |
| eight | Selling expenses | 5000 |
| nine | Administrative expenses | 3000 |
| Total: | 101 800 ₽ |
8. PERFORMANCE EVALUATION
Evaluation of project efficiency is carried out on the basis of the analysis of the financial plan, cash flows, as well as simple and integral performance indicators (Table 1). To account for the change in the value of money over time, the discounted cash flow method is used. A discount rate of 12% was adopted.
The annual revenue of the enterprise after reaching the planned sales volumes is 63.7 million rubles; net profit (after taxes) – 7.6 million rubles. Simple (PP) and discounted (DPP) payback period is 6 months.
Net present value (NPV) – 2,772,740 rubles, which is a high value and indicates the high efficiency of the project. Internal rate of return (IRR) – 24.73%, index of return (PI) – 1.35. These integral indicators also speak about the effectiveness and investment attractiveness of the project.
9. WARRANTIES AND RISKS
When assessing the risks associated with the implementation of the project, external and internal factors are analyzed. The internal ones include low product quality due to low-quality components or assembly technology, as well as loss of profit due to poor-quality work of sales specialists. It is possible to neutralize the threats from these factors by constantly monitoring the quality of products and controlling the work of all links by the director.
External risk factors include the following:
- actions of competitors – price struggle on the part of existing players and the emergence of new ones; it is necessary to strengthen the position of the enterprise and the relationship with regular corporate clients as soon as possible
- decrease in demand associated with a decrease in the solvency of the population; some reduction in the selling price is possible due to a decrease in profitability; it is also necessary to provide for the possibility of reducing the cost of production by optimizing production, procurement and other factors.
10. APPS
Financial plan
