Replay Plastics

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Plastics Recycling Business Plan

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.

7.1 Important Assumptions

  • 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

7.2 Break-even Analysis

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
Monthly Units Break-even 715,962
Monthly Revenue Break-even $373,890
Assumptions:
Average Per-Unit Revenue $0.52
Average Per-Unit Variable Cost $0.27
Estimated Monthly Fixed Cost $184,160

7.3 Projected Profit and Loss

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.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3 Year 4 Year 5
Sales $15,079,100 $31,553,774 $39,169,900 $41,128,395 $43,146,315
Direct Cost of Sales $7,651,875 $12,863,010 $13,618,605 $14,222,535 $15,002,962
Production Payroll $953,657 $1,713,013 $1,963,829 $2,062,020 $2,165,121
Packaging $150,791 $315,538 $391,699 $411,284 $431,463
Sales Commission $733,102 $1,501,893 $1,871,678 $1,965,261 $2,063,524
Total Cost of Sales $9,489,425 $16,393,454 $17,845,811 $18,661,100 $19,663,071
Gross Margin $5,589,676 $15,160,320 $21,324,090 $22,467,295 $23,483,244
Gross Margin % 37.07% 48.05% 54.44% 54.63% 54.43%
Operating Expenses
Sales and Marketing Expenses
Sales and Marketing Payroll $0 $0 $0 $0 $0
Advertising/Promotion $6,000 $50,000 $100,000 $150,000 $200,000
Travel $0 $0 $0 $0 $0
Total Sales and Marketing Expenses $6,000 $50,000 $100,000 $150,000 $200,000
Sales and Marketing % 0.04% 0.16% 0.26% 0.36% 0.46%
General and Administrative Expenses
General and Administrative Payroll $362,200 $585,417 $630,189 $678,747 $731,440
Sales and Marketing and Other Expenses $0 $0 $0 $0 $0
Depreciation $241,740 $405,992 $562,908 $562,908 $562,908
Payroll Burden $394,757 $689,529 $778,205 $822,230 $868,968
Office Equipment Rent $6,000 $6,000 $8,000 $8,000 $8,000
Office Supplies/Expense $12,000 $15,000 $20,000 $22,500 $25,000
Travel & Entertainment $16,000 $30,000 $35,000 $40,000 $45,000
Leased Vehicles $18,000 $25,000 $30,000 $30,000 $30,000
Utilities $678,560 $1,419,920 $1,762,646 $1,850,778 $1,941,584
Insurance $24,000 $25,000 $25,000 $25,000 $25,000
Misc Plant & Maintainence Supplies $60,000 $63,000 $66,150 $69,458 $72,930
Other $0 $0 $0 $0 $0
Total General and Administrative Expenses $1,813,257 $3,264,858 $3,918,098 $4,109,621 $4,310,831
General and Administrative % 12.02% 10.35% 10.00% 9.99% 9.99%
Other Expenses:
Other Payroll $0 $0 $0 $0 $0
Misc (contingency) $90,661 $163,239 $195,905 $205,481 $215,542
Prof Fees ( Includ legal & accounting) $300,000 $330,000 $363,000 $399,300 $439,230
Total Other Expenses $390,661 $493,239 $558,905 $604,781 $654,772
Other % 2.59% 1.56% 1.43% 1.47% 1.52%
Total Operating Expenses $2,209,918 $3,808,097 $4,577,003 $4,864,402 $5,165,603
Profit Before Interest and Taxes $3,379,758 $11,352,223 $16,747,087 $17,602,893 $18,317,641
EBITDA $3,621,498 $11,758,215 $17,309,995 $18,165,801 $18,880,549
Interest Expense $60,568 $54,464 $48,064 $41,664 $35,264
Taxes Incurred $995,757 $3,389,328 $5,009,707 $5,268,369 $5,484,713
Net Profit $2,323,433 $7,908,431 $11,689,316 $12,292,860 $12,797,664
Net Profit/Sales 15.41% 25.06% 29.84% 29.89% 29.66%

7.4 Projected Cash Flow

Cash flow is predicted to turn positive in the sixth month of operations, which is the tenth month after funding. The Cash Flow table shows our planned repayment of the long-term loan, as well as the purchase of new extrusion equipment in the first two year of the plan. Dividends to founders and the outside investor are shown near the bottom of the table.

Pro Forma Cash Flow
Year 1 Year 2 Year 3 Year 4 Year 5
Cash Received
Cash from Operations
Cash Sales $0 $0 $0 $0 $0
Cash from Receivables $13,094,219 $29,385,192 $38,167,380 $40,870,596 $42,880,693
Subtotal Cash from Operations $13,094,219 $29,385,192 $38,167,380 $40,870,596 $42,880,693
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0 $0 $0
New Current Borrowing $0 $0 $0 $0 $0
New Other Liabilities (interest-free) $0 $0 $0 $0 $0
New Long-term Liabilities $0 $0 $0 $0 $0
Sales of Other Current Assets $0 $0 $0 $0 $0
Sales of Long-term Assets $0 $0 $0 $0 $0
New Investment Received $0 $0 $0 $0 $0
Subtotal Cash Received $13,094,219 $29,385,192 $38,167,380 $40,870,596 $42,880,693
Expenditures Year 1 Year 2 Year 3 Year 4 Year 5
Expenditures from Operations
Cash Spending $1,315,857 $2,298,430 $2,594,018 $2,740,767 $2,896,561
Bill Payments $9,762,949 $20,983,849 $24,120,412 $25,478,360 $26,824,280
Subtotal Spent on Operations $11,078,806 $23,282,279 $26,714,430 $28,219,127 $29,720,842
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0 $0 $0
Principal Repayment of Current Borrowing $0 $0 $0 $0 $0
Other Liabilities Principal Repayment $0 $0 $0 $0 $0
Long-term Liabilities Principal Repayment $79,200 $80,000 $80,000 $80,000 $80,000
Purchase Other Current Assets $0 $0 $0 $0 $0
Purchase Long-term Assets $1,591,000 $3,229,000 $0 $0 $0
Dividends $0 $3,000,000 $8,000,000 $10,000,000 $10,000,000
Subtotal Cash Spent $12,749,006 $29,591,279 $34,794,430 $38,299,127 $39,800,842
Net Cash Flow $345,213 ($206,088) $3,372,950 $2,571,469 $3,079,852
Cash Balance $990,213 $784,125 $4,157,075 $6,728,544 $9,808,396

7.5 Projected Balance Sheet

The vertical integration, immediate sales contracts and rapid ramp up of production combine to project a Net Worth at the end of year one in excess of the total invested capital. By staying on plan, the Company will achieve rapid growth compared to invested capital.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3 Year 4 Year 5
Assets
Current Assets
Cash $990,213 $784,125 $4,157,075 $6,728,544 $9,808,396
Accounts Receivable $1,984,881 $4,153,463 $5,155,983 $5,413,782 $5,679,403
Inventory $510,125 $857,534 $907,907 $953,302 $1,000,075
Other Current Assets $25,000 $25,000 $25,000 $25,000 $25,000
Total Current Assets $3,510,219 $5,820,122 $10,245,965 $13,120,628 $16,512,874
Long-term Assets
Long-term Assets $5,211,000 $8,440,000 $8,440,000 $8,440,000 $8,440,000
Accumulated Depreciation $241,740 $647,732 $1,210,640 $1,773,548 $2,336,456
Total Long-term Assets $4,969,260 $7,792,268 $7,229,360 $6,666,452 $6,103,544
Total Assets $8,479,479 $13,612,390 $17,475,325 $19,787,080 $22,616,418
Liabilities and Capital Year 1 Year 2 Year 3 Year 4 Year 5
Current Liabilities
Accounts Payable $1,445,246 $1,749,726 $2,003,345 $2,102,240 $2,213,914
Current Borrowing $0 $0 $0 $0 $0
Other Current Liabilities $0 $0 $0 $0 $0
Subtotal Current Liabilities $1,445,246 $1,749,726 $2,003,345 $2,102,240 $2,213,914
Long-term Liabilities $720,800 $640,800 $560,800 $480,800 $400,800
Total Liabilities $2,166,046 $2,390,526 $2,564,145 $2,583,040 $2,614,714
Paid-in Capital $4,200,000 $4,200,000 $4,200,000 $4,200,000 $4,200,000
Retained Earnings ($210,000) ($886,567) ($978,136) $711,180 $3,004,040
Earnings $2,323,433 $7,908,431 $11,689,316 $12,292,860 $12,797,664
Total Capital $6,313,433 $11,221,864 $14,911,180 $17,204,040 $20,001,704
Total Liabilities and Capital $8,479,479 $13,612,390 $17,475,325 $19,787,080 $22,616,418
Net Worth $6,313,433 $11,221,864 $14,911,180 $17,204,040 $20,001,704

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 Total Assets
Accounts Receivable 23.41% 30.51% 29.50% 27.36% 25.11% 24.83%
Inventory 6.02% 6.30% 5.20% 4.82% 4.42% 11.53%
Other Current Assets 0.29% 0.18% 0.14% 0.13% 0.11% 32.03%
Total Current Assets 41.40% 42.76% 58.63% 66.31% 73.01% 68.39%
Long-term Assets 58.60% 57.24% 41.37% 33.69% 26.99% 31.61%
Total Assets 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Current Liabilities 17.04% 12.85% 11.46% 10.62% 9.79% 26.62%
Long-term Liabilities 8.50% 4.71% 3.21% 2.43% 1.77% 25.26%
Total Liabilities 25.54% 17.56% 14.67% 13.05% 11.56% 51.88%
Net Worth 74.46% 82.44% 85.33% 86.95% 88.44% 48.12%
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%
Additional Ratios Year 1 Year 2 Year 3 Year 4 Year 5
Net Profit Margin 15.41% 25.06% 29.84% 29.89% 29.66% n.a
Return on Equity 36.80% 70.47% 78.39% 71.45% 63.98% n.a
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

7.7 Long-term Plan

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.

7.8 Replay's Exit Strategy

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.