The Vice- Chancellor s Cup of Student Entrepreneurship 2015 Final Proposal

Transcription

1 The Vice- Chancellor s Cup of Student Entrepreneurship 2015 Final Proposal Name of Project: Recycling organic solvents Faculty Supervisor: Name: Professor Wilton Chau Department: Practice in Entrepreneurship, MBA Programs Team Members: (1) Name: Atsushi SUGIYAMA Student ID: Phone: a- sugiyama@sunup.jp Department & Program: MBA, Full- time Date of expected graduation from CUHK: 2016 (2) Name: Anubhav JAIN, Student ID: Phone: jain.anubhav19@gmail.com Department & Program: MBA, Full- time Date of expected graduation from CUHK: 2016 (3) Name: Monica DEE Student ID: Phone: monicadee18@gmail.com Department & Program: MBA, Full- time Date of expected graduation from CUHK: 2016 (4) Name: Khiem VU Student ID: Phone: khiemngocvu@gmail.com Department & Program: MBA, Full- time Date of expected graduation from CUHK: 2016

2 Executive Summary Establish joint venture among Sun- up Corporation, Inoueki (Thailand) Co., Ltd. and investor. Build up distillation plant and conduct Business Model recycling organic solvents at clients premises or away from clients premises. Provide 95-99% purified recycled organic solvents, which can reduce cost around 20-30% and contribute to reduction of CO 2 emission. Bangkok in Thailand is desirable market for recycling organic solvents because Bangkok has many manufacturing industries, which are the Market engines of GDP growth. Organic solvents are essential for manufacturing industries such as painting, steel, chemical and so on. Moreover, Thai government has started to implement strict environmental guideline as same as other developed countries. Only a few, low tech, non- Japanese competitors have conducted Competitors recycling organic solvents business in Bangkok. We would be fast mover for this market, and entry barrier is not very high. As we ve already had a promising big customer, we would be able to Financial Projection Equity Funding earn 0.5 million US$ from the first year. It is estimated that the total net profit would exceed 1.0 million US$ within 5 years million US$ for 10% company stock share. Also, it shall pay dividends to shareholder after taking its financial situation into consideration. We re looking forward to having prolonged relationship with the investor who has wide netowork especially in manufacturing industry. 1

3 Organic solvents; Organic solvents are the blood of the global manufacturing sectors. In the daily production processes, manufacturers use tons of organic solvents, such as ethylene glycol, toluene and xylene, particularly to clean the facilities used in paint and steel production and to act as a catalyst of chemical reactions involved in chemical and pharmaceuticals industries. The usage of such chemicals generates efficiency and productivity in the manufacturing operation schemes, which as a result, increase the competitive edge of these various manufacturing businesses. The high price of virgin organic solvents, along with other associated treatment and logistic costs, has resulted in manufacturing companies to incurring higher operation costs, which in turn, diminish their price competitiveness against the respective competitors. Additionally, the rising concerns and stricter scrutiny on the proper chemical waste management from both customers and the government are encouraging businesses to act accordingly for their sustainability. Use of Organic Solvents Examples of Organic Solvents Ketone system Many manufacturing companies have to use tons of organic solvents for production process every day. For instance (1) Paint manufacturer (2) Steel manufacturer (3) Chemical manufacturer Acetate system Alcohol system Ether system : Cleaning stained facility : Cleaning stained facility : Chemical reaction Glycol system Hydrocarbon system Halogen system Amine system : Acetone, Methyl ethyl ketone (MEK), Methyl isobutyl ketone (MIBK) : Ethyl acetate, Ethyl acetate, Butyl acetate : Isopropyl alcohol (IPA), Methanol : Methyl cellosolve, Ethyl cellosolve, Butyl Cellosolve : Ethylene glycol, Diethylene glycol, Propylene glycol : Toluene, Xylene : Dichloromethane, Trichloroethylene, Tetrachloroethylene : N-methylpyrrolidone (NMP), N-dimethylformamide (DMF) Sun- up Corporation; Sun- up Corporation (Sun- up), with nearly 20 years of experience in the environmental business, can certainly help manufacturers tackle such issues through its business schemes in recycling organic solvents. Atsushi SUGIYAMA, Japanese CUHK MBA candidate class of 2016, is the director of his family business, Sun- up. With an extensive network of manufacturing businesses in Japan, the company has a thorough insight into these markets, enabling it to reach out the relevant channels. The company is now looking forward 2

4 business opportunities in oversea market as new venture project with Japanese and/or local partners. Business Partners; Sun- up is going to conduct recycling organic solvents business in Thailand with its business partners. The company operates under a 3- party joint venture. Sun- up owns 70% company stock and offers the investment and planning, as well as running the operations. Inoueki (Thailand) Co. Ltd., a corporation in Thailand with a broad sales network of chemicals, owns 20% company stock and is responsible for sales and marketing. Moreover, the investor would own 10% company stock and fund for this project. The recycling technology is owned and provided by Nikkaki Thailand Co., Ltd., which is recognized as a top engineering corporation in terms of chemical distillation plant in Japan. At the time being, the company is now in the final negotiation stage with some of the chemical manufacturers, which need to use tons of organic solvents in running their daily operations. Sun-up Corporation Business Scheme Company Name: Sun-up Corporation Date of establishment: July 1995 Address: , Sasagi, Tsukuba City, Ibaraki Prefecture, Japan Type of Business: Trading and investment for environmental / recycling business (chemical, scrap, plastic, paper, etc.) Capital: US$ 400,000 Turnover: US$ 4-5 million per year Number of employees: 7 Website: Sales 10% Investor Financing Engineering Maintenance 20% 70% Planning Operation License Benefits of recycling organic solvents; Sun- up is committed to offering its clients the following benefits: Low- cost and high- quality recycled organic solvents: Customers who avail of these recycled organic solvents can lower their costs in purchasing these products by 20%- 30%, as compared to that in procuring the virgin organic solvents. Additionally, other required costs, such as those associated with waste treatment and with logistics are diminished. 3

5 Eco- friendly solution: This adds great value to the long- term growth of the company, reduces business risks, increases volume of clients and promotes corporate social responsibility. For instance, utilizing this technology reduces the petroleum consumption level and CO 2 emissions down to 3.5 times. Market; Organic solvents are widely used in manufacturing sectors. We see the demand for this is rising rapidly in Asian emerging markets such as China, Thailand, India, Indonesia, Vietnam, and so on. Even Japan, deemed as the one of the most prominent, technologically advanced, and environmentally concerned countries in the world, has been using only roughly 10 percent of recycled solvents. It is predicted that the total volume of organic solvents consumption by the manufacturing sectors in Japan was 2.3 million in On the other hand, the market potential in China is even more tempting. China manufacturers consume close to 13 million tons year on year but a very little percentage of them are recycled. To that end, the market is huge. China, where organic solvent market is approximately six times larger than that of Japan, is estimated to use less than 1% of recycled solvents, due mainly to the environmental awareness in Chinese businesses. Although China seems to be a big market, it will take time to create market. Mil. USD 45,000" 40,000" 35,000" 30,000" 25,000" 20,000" 15,000" 10,000" 5,000" 0" Japan: The Recycling Situation Organic Solvents Recycling Rate in Japan (2012) 10%$ 90%$ Recycled' Non'recycled' Japan : 2.3 million tons Thailand : 0.5 million tons China : 13.0 million tons Sources: Market potential is huge! Nippon Refine Co., Ltd. Mitsubishi Corporation Japan: Direct Investment 41,591& Accumulated Direct Investment from Japan ( ) 27,247& 23,850& 23,472& 23,808& 19,886& 12,551& 12,752& 11,860& 8,575& Thailand" Singapore" India" Indonesia" Korea" Hong"Kong" Malaysia" Vietnam" Philippines" Taiwan" Source: JETRO Thailand, on the contrary, a significant manufacturing hub in Asia with the highest direct investment from Japan, exhibits better standards of environmental awareness and a rising demand for recycled organic solvents due to increasing manufacturing cost. The decision to land investment in Thailand because this country over the years has 4

6 evolved into the Asian hub of the more complicated manufacturing sectors like automobile, electric products, chemical products and so on. The Ministry of Industry of Thailand has been imposing legislations on companies regarding the proper treatment of chemical wastes. They have a stricter monitoring system and inspection crews to scrutinize the waste treatment. For instance, in 2013, the government started a trial of PRTR at Rayong province. The PRTR, or Pollutant Release and Transfer Register, system enables the inspectors to know what chemicals, from what kind of sources, and how much chemicals are released for each year. Furthermore, due to some political initiative, labor cost has increased in Thailand over the past few years. As a result there is an increased pressure on the companies on cost cutting. Under such scenario, cost effective recycled solvents have a promising future. Thailand: Increasing Eco-awareness Thailand: Increasing Cost Pressure Notification of the Ministry of Industry: o Clarify waste materials o Introduce E-manifest for treatment of toxic wastes 2012 DIW enforced laws against illegal chemical waste dumping o Monitor illegal dumping instead of local authorities o Publicize entities practising proper chemical treatment Minimum Wage in Bangkok ( ) Department of Industrial Works (DIW) o Launched authorization system for excellent environmentallyfriendly companies Piloted PRTR system at Rayong province o Manufacturers are adapting accordingly Increased +140% after Ex-PM Yingluck Jan-89 Aug-89 Mar-90 Oct-90 May-91 Dec-91 Jul-92 Feb-93 Sep-93 Apr-94 Nov-94 Jun-95 Jan-96 Aug-96 Mar-97 Oct-97 May-98 Dec-98 Jul-99 Feb-00 Sep-00 Apr-01 Nov-01 Jun-02 Jan-03 Aug-03 Mar-04 Oct-04 May-05 Dec-05 Jul-06 Feb-07 Sep-07 Apr-08 Nov-08 Jun-09 Jan-10 Aug-10 Mar-11 Oct-11 May-12 Dec-12 Jul-13 Feb-14 Sep-14 Source: Personnel Consultant Manpower Plus, Sun- up has the market insight and network in Thailand for more than 5 years in automobile, steel and paint businesses, key industries that are highly adopting organic solvents in their productions. Due to the strong network in Thailand, Sun- up wants to exploit its relationships to aggressively start the expansion phase from Thailand. Thus, the use of recycled organic solvent is very promising, if not a must. Competitors; The market is defnitely blue ocean as there are a few competitors, which are Thai local company and Taiwanese company. The issue is that they can not easily approach Japanese company because of language and business custom. It may be true big enterprises can conduct recycling organic solvents by themselves, but they can handle merely simple organic solvents. It may also be true other SMEs can penetrate this market, but they are 5

7 hesitating to do that because of lackking successor, engieer, and cash. Sun- up acturelly proposed this project to top 5 Japanese SMEs, but it was rejected by all of them due to the above reasosns. Business Model; Sun- up is focused on the recycling of organic solvents and providing these products to its various customers coming from different industry sectors. Ethylene glycol, diethylene glycol, and propylene glycol under the glycol system, toluene and xylene under the hydrocarbon system are the most commonly used types in production processes. The company uses the recycling technology of its Japanese partner to create high- quality recycled organic solvents to create added value for the production lines of its clients. The recycled product has an approximately 90%- 95% purity relative to the original virgin product. The key procedures involved in the recycling Operation Chart Distilled organic solvents are packaged into boxes or drums, and sold to whole sellers or returned The waste organic solvents to clients. are put into the distillation plant for processing. The waste organic solvents are divided into several chemical products. Sludge can be utilized as a combustion improver and as an ingredient of cement. of organic solvents are mainly based on the principles of distillation as a scientific process. Firstly, the waste organic solvents of the manufacturers are collected and stored in the distillation equipment in preparation for treatment. Secondly, the machinery uses evaporation and regulation of air pressure to separate the different chemical substances according to their distinctive chemical properties, such as boiling points. The evaporated gases are then cooled down in condensation chambers to revert them back into their pure liquid forms. The company estimates that the recycled organic solvents market demand in Thailand is approximately 25,000 tons every year, where it will gain 10% of the market share after 5 years. Sun- up focuses on the two business schemes according to distillation type: Onsite type for single distillation: Under this scheme, the recycling of a single organic solvent takes place onsite at the client premises. There is no need to acquire and own land or property since the distillation plant is built and established on the property owned by the client. Therefore, property arrangements, such as rental contracts, must be considered under this scheme. Also under this scheme, revenue 6

8 comes primarily from processing on commission. Hence, inventory costs are practically zero. If ever there is an overstock of recycled organic solvents, then these can be sold to other clients for a lower price than that of the new original ones. The initial investment required in this model is approximately US$400,000 US$700,000. In initial stages, this business scheme is generally preferred due to the lower risk associated with investment costs. Offsite type for multiple distillation: Under this scheme, the recycling of multiple organic solvents takes place away from the client premises. This equipment facility is more complex due to the incorporation of several types of solvents into a single processing technology. Acquiring and owning land or property is a requirement to build and established the distillation plant at the own premises of Sun- up. Also under this scheme, revenue comes primarily from the selling of the recycled organic solvent products to various customers. Waste organic solvents are collected from various clients, which are then recycled by this technology. Afterwards, the recycled organic solvents will be sold to various clients at a price lower than that of the virgin products. As previously mentioned, this is a more complicated scheme and it also involves a higher initial investment. Approximately US$1,250,000 US$2,000,000 is required. It is thus preferable for this type to only be considered after the successful establishment of the single distillation model. Distillation Method Distillation Method 1. Onsite Type : Single Distillation - Build distillation plant at client s site - Conduct processing on commission - Sell recycled organic solvents to other companies 2. Offsite Type : Multiple Distillation - Build distillation plant at own premise - Collect waste organic solvents and distill them - Sell recycled organic solvents Client A Waste organic solvents Distillation plant Recycled organic solvents Client B Client A Waste organic solvents Distillation plant Waste organic solvents Client B Recycle (process on commission) Recycle & Sell Recycle & Sell Client A s premise Own premise Management Team; What are their education/working experience and track records? The president, Atsushi SUGIYAMA, has 8 years work experience at Mitsubishi Corporation, fortune 500 7

9 international company. As a senior manager of automotive distributor, he worked at the subsidiary of Mitsubishi Corporation in Thailand, and he built up wide network there. We believe he can lead the organization well and execute this project because he has strong passion, management experience, fluent Thai language, and wide network. With regard to directors, Junichi MURAI would be in charge of production management. He has more than 15 years experience of recycling organic solvents business, so that s why he is an expert of this operation. Tomohiro TAKAKI would take responsibility of sales as the representative of Inoueki (Thailand) Co., Ltd. He is the marketing expert in chemical industry. Financial Projection; Revenue can be generated at the onset of the onsite scheme, accounting for over half of a million in US$. Also, the company has already come into an agreement with one confirmed client in Thailand to cooperate in setting up an onsite business scheme in the premises of that client. This shows that our revenue model is a sustainable one. Meanwhile, the offsite revenue stream, based on the projected market share, can generate net profits in the second year of operation. The total net margin of both onsite and offsite type businesses is estimated to hit more than 1.0 million US$ within 5 years after starting operation. The 5- year forecast of income statement, balance sheet, cash flow statement are described in appendices. Equity Funding; Sun- up is keen to work with engaged investors who are looking to fund this project and build a long- term relationship with the company. The proposition is for Sun- up to offer 10% stock share in exchange for an investment funding of US$ 750,000. The appropriate timing for this is upon the commencement of the expansion phase. The use of proceeds is for the construction of the necessary distillation plants for the two business schemes. The single distillation plant to be established onsite at the client premise requires US$ 0.25 million. The more complicated multiple distillation plant to be established at the own property of Sun- up requires US $0.50 million. 8

10 We would report regularly to share holders to update the project situation, and hold a shareholder meeting every quarter in Thailand. If the company successfully makes profit, it shall pay dividends to shareholder after taking its financial situation into consideration. It is worth noting that the revenue models show that most of the risk is concentrated in phase 1, the start- up phase, where there are challenges of finding key partners and their agreement for a long- term association with the onsite installed distillation plants, as well as the recycled solvent outputs. Phase 2, the expansion phase, aims to expand the market and reduce the risks of high reliance on the limited level of capacity of the partners in the initial phase. It is projected that the expansion phase requires the funding due mainly to the long- term assets such as land and other management and human resources- related costs but its profit margins can return very quickly and increase rapidly through coming years. 9

11 Appendices 1: Income Statement Income'Statement'Projection'/Onsite'Business'Type/' (in$us$$millions) FY#2016 FY#2017 FY#2018 FY#2019 FY#2020 Sales'Revenue COGS#/#Breakdown: #####Raw#Material / / / / / #####Distillation#Plant (0.10) (0.10) (0.10) (0.10) (0.10) #####Land#(Rental) (0.00) (0.00) (0.00) (0.00) (0.00) #####Transportation / / / / / #####Utility (0.01) (0.01) (0.02) (0.02) (0.02) COGS'/'Total (0.12) (0.12) (0.12) (0.12) (0.12) Gross'Profit Gross'Margin 84.3% 84.3% 88.5% 88.5% 88.5% OPEX#/#Breakdown: #####Salary (0.04) (0.04) (0.04) (0.04) (0.04) #####Others (0.07) (0.07) (0.11) (0.11) (0.11) OPEX'/'Total (0.11) (0.11) (0.15) (0.15) (0.15) Net'Profit Net'Margin 68.9% 68.9% 74.7% 74.7% 74.7% Income'Statement'Projection'/Offsite'Business'Type/' (in$us$$millions) FY#2016 FY#2017 FY#2018 FY#2019 FY#2020 Market#Demand#(tons) 25,000 25,500 26,000 26,500 27,000 Market#Share#(%) 0% 1% 3% 5% 10% Sales#Volume#(tons) ,325 2,700 Sales'Revenue COGS#/#Breakdown: #####Raw#Material 0.00 /0.02 /0.07 /0.12 /0.24 #####Distillation#Plant 0.00 /0.20 /0.20 /0.20 /0.20 #####Land#(Purchase) 0.00 /0.00 /0.00 /0.00 /0.00 #####Transportation 0.00 /0.00 /0.00 /0.00 /0.00 #####Utility 0.00 /0.05 /0.16 /0.27 /0.55 COGS'/'Total 0.00 /0.28 /0.44 /0.60 /1.00 Gross'Profit 0.00 / Gross'Margin 0.00 / OPEX#/#Breakdown: #####Salary 0.00 /0.04 /0.04 /0.04 /0.04 #####Others 0.00 /0.02 /0.06 /0.10 /0.20 OPEX'/'Total 0.00 /0.06 /0.10 /0.14 /0.24 Net'Profit 0.00 / Net'Margin 0.0% /76.4% 9.3% 26.5% 38.9% 10

12 Appendices 2: Balance Sheet Balance%Sheet%Projection (in$us$$millions) Assets %%Current%assets!!!!!!Cash!at!bank!and!on!hand!!!!!!!Accounts!receivable!!!!!!Inventories FY%2016 FY%2017 FY%2018 FY%2019 FY% %%Total%current%assets %%NonBcurrent%assets!!!!!!Property,!plant!and!equipment !!!!!!Intangible!Asset %%Total%nonBcurrent%assets %%Total%Assets Liabilities%and%Owners'%Equity %%Current%liabilities!!!!!!ShortHterm!borrowings!!!!!!Accounts!payable!!!!!!Taxes!payable!!!!!!Interest!payable %%Total%current%liabilities FY%2016 FY%2017 FY%2018 FY%2019 FY% %%Total%liabilities %%Owners'%equity!!!!!!PaidHin!capital!!!!!!Statutory!surplus!reserve !!!!!!Retained!Earning %%Total%owners'%equity Total%Liabilities%and%Owners'%Equity

13 Appendices 3: Cash Flow Statement Cash%Flow%Statement%Projection (in$us$$millions) Item FY2016 FY2017 FY2018 FY2019 FY2020 Cash%flows%from%operating%activities!!!!!Cash!received!from!sales!of!goods!or!rendering!of!services!!!!!!!Sub5total!of!cash!inflows!!!!!!Cash!paid!for!goods!and!services!!!!!Cash!paid!to!and!on!behalf!of!employees!!!!!Payments!of!taxes!and!surcharges!!!!!Cash!paid!relating!to!other!operating!activities!!!!!!!!Sub5total!of!cash!outflows! %%%%%%%%%Net%cash%flows%from%operating%activities% Cash%flows%from%investing%activities!!!!!Cash!paid!to!acquire!fixed!assets,!intangible!assets!and!other!long5term!assets !!!!!!!Sub5total!of!cash!outflows! %%%%%%%%%%Net%cash%flows%from%investing%activities% D Cash%flows%from%financing%activities%!!!!!Cash!received!from!capital!contributions!!!!!Cash!received!from!borrowings!!!!!!!Sub5total!of!cash!inflows!!!!!!Cash!repayments!of!borrowings!!!!!Cash!payments!for!interest!expenses!and!distribution!of!dividends!or!profits!!!!!!!Sub5total!of!cash!outflows %%%%%%%%%%Net%cash%flows%from%financing%activities% Net%increase%in%cash%and%cash%equivalents!!!!!Add:!Cash!and!cash!equivalents!at!beginning!of!year! D0.00 D Cash%and%cash%equivalent%at%end%of%year%