AFC Consultants International

CONCRETE HOLLOW BLOCKS FACTORY

TABLE OF CONTENTS
1

EXECUTIVE SUMMARY ...................................................................................... 2

PROJECT DESCRIPTION..................................................................................... 2
2.1
2.2
2.3

MARKET ANALYSIS ............................................................................................. 4

3.1
3.2
3.3
3.4

PERCEIVED NEEDS ............................................................................................... 5

MAIN COMPETITION ............................................................................................. 6
TARGET MARKET ................................................................................................. 6
SWOT ANALYSIS ................................................................................................ 6

MARKETING PLAN............................................................................................... 7
4.1
4.2
4.3

FACILITIES AND INITIAL INVESTMENT .................................................................. 2

PRODUCTION PROCESS ......................................................................................... 3
STAFFING STRUCTURE ......................................................................................... 3

MARKETING STRATEGY ....................................................................................... 7

PRICING ............................................................................................................... 7
SALES CHANNEL.................................................................................................. 7

FINANCIAL PLAN.................................................................................................. 8
5.1
5.2
5.3
5.4
5.5
5.6
5.7

MAJOR ASSUMPTIONS .......................................................................................... 8

PROJECTED INCOME STATEMENT ......................................................................... 9
PROJECTED BALANCE SHEET .............................................................................. 10
PROJECTED CASH FLOWS.................................................................................... 11
PROJECTED RATIO ANALYSIS ............................................................................. 12
BREAK- EVEN ANALYSIS ..................................................................................... 13
SENSITIVITY ANALYSIS ..................................................................................... 13

CONCLUSION AND RECOMMENDATIONS.................................................. 14

ECONOMIC IMPACT EVALUATION .............................................................. 14

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Executive Summary

The proposed project consists in establishing a concrete hollow block factory in

Marjeyoun town.
Large areas of Lebanon and specifically in the South region lie in ruin following the recent
Israeli air, sea and land assaults. Therefore, it would be beneficial to invest ventures
producing building materials such as a hollow block concrete factory as this type of block is
one of the most basic elements in construction.
The initial investment is estimated at $123,419, which includes $57,500 for the required
equipment and $54,919 for working capital.
The projections are taken over a period of 7 years. The plant provides average annual
profitability of $31,941. The average return on investment (ROI) is 106%.
The concrete hollow block factory provides an internal rate of return (IRR) of 23% and a
payback period of 5 years 4 months. These results show that the project is feasible and
provides good returns for its shareholders.
The concrete hollow block plant will offer 15 job opportunities. As a result, the plant
will contribute to the general enhancement of the economic environment in Marjeyoun.

Project description

The project consists in developing a concrete hollow block factory in Marjeyoun caza. The
plant will be able to supply concrete hollow blocks to Marjeyoun as well as Bint Jbeil, Hasbaya
and Nabatieh regions.

2.1 Facilities and initial investment

The total land area is assumed to be 5,000 m2 out of which 1,125 m2 will be needed for the
factory, 125 m2 for the administrative offices, and 3,750 m2 for the warehouse. It is assumed
that the land would be rented out at a rate of $1/m2 per year.

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The following table shows the projected equipment and initial investment requirements. The
total investment required includes the cost of equipment, vehicles, as well as working capital
requirements and amounts to $123,398.

Initial Investment
Cost Items
Quantity Unit cost
Total cost
Semi-automatic block factory
1
30,000
30,000
Dumper
1
15,000
15,000
Pallets
50
30
1,500
Total equipment
46,500
Pick up (used)
1
5,000
5,000
Furniture & Fixtures
12,000
Computer & Office Equipment
3,000
Establishment Costs
2,000
Total fixed assets
68,500
Working capital needs
54,919
Total initial investment
123,419
Source:

Tony Abi Antoun,

Best Concrete

2.2 Production process

The production process involves the following steps:
1. The ingredients (sand, cement, water, etc) are mixed in a special mixer to obtain the
mortar.
2. The workers press the mortar through the mechanically operated machines. The
pressing process and the ratio of the ingredients mix play an important role in
determining the strength of the blocks.
3. The company will have a pick-up to deliver blocks directly to work sites. Blocks can be
loaded on pallets or by individual blocks.

2.3 Staffing structure

The staff structure will be distributed as follows:

STAFF STRUCTURE
Management & Sales
Plant Manager
Assistant and accountant
Drivers
Total administrative staff
Foreman
Daily Workers
Total production staff
TOTAL

Marjeyoun - Feasibility Study Concrete Hollow Block Factory V.2

Number of
employees

1
1
2
4
1
10
11
15

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Market Analysis

The construction blocks market has been on an increasing trend, mainly driven by the
reconstruction efforts in the country.
Large areas of Lebanon lie in ruin following the recent Israeli air, sea, and land assaults.
Homes and businesses in a number of Lebanese rural and urban villages and towns in South
Lebanon are in need of reconstruction. According to the Government assessments, the war
has set back the countrys infrastructure for at least 15 years with reconstruction and
rehabilitation to be carried out on a large scale basis.
There are 15 small concrete hollow block factories in Marjeyoun and 7 small concrete hollow
block factories in Hasbaya. Therefore investing in a technically advanced factory producing
building materials of high quality and same price would be beneficial for the region. A hollow
concrete block factory operating at full capacity would be sufficient in meeting the needs for
reconstruction in the Cazas of Marjeyoun, Hasbaya, and Bint Jbeil.
Price-wise, the trend has been going upward, especially with the increase in the costs of raw
materials including sand, aggregates, etc In fact, the costs of aggregates and sand have
increased substantially since the forced shut down of a number of illegal quarries in Lebanon.
In addition, the price of cement is quite high because of the duopoly in the cement sector
(only 2 companies operate in this sector). More recently, the increased demand created by the
reconstruction activities following the July 2006 war has led to cement price hikes by 20% to
25%.
The high costs of raw materials are reflected in the selling price.
Generally, demand is seasonal, where winter is considered a low season.

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3.1 Perceived Needs

The large scale of destruction has left many towns and villages in the districts of Marjeyoun,
Hasbaya and Bint Jbeil in ruins. The following table shows the scale of destruction by selected
villages and the surfaces of houses and residences to be rebuilt as well as the amounts of
concrete needed for reconstruction.
In October 2006, the area to be constructed in the Khiyam region was estimated at 300,000
m2. Up to November 2007, 80% of the ruins have been rebuilt with 60,000 m2 remaining.

Approximate Area to be
constructed in m2
60,000
6,000
25,000
20,000
5,000
35,000
4,500
4,500
45,000
3,000
208,000
Bint Jbeil
Bint Jbeil
400,000
Ayatroun
34,000
Aynata
105,000
Maroun el Ras
47,000
Blida
22,000
Baraachite
38,000
Ain Ebel
7,500
Rmeich
3,700
Kouneen
28,000
Tebnine
15,700
Shakra
2,700
703,600
Hasbaya
Kfarshouba
25,000
Kfaraman
3,000
Rashaya Fokhar
1,500
Hibariyeh
2,000
31,500
Total in need
943,100
District
Marjeyoun

Town
El-Khiyam
Kfar Kila
Houla
Meis el Jabal
Jdeidat
Debine
Blat
Kantara
Taybee
Deirmimas

Marjeyoun - Feasibility Study Concrete Hollow Block Factory V.2

Estimated Concrete
needed in m3
20,000
5,700
24,200
19,000
4,700
34,200
4,200
4,370
42,700
2,800
161,870
370,000
32,750
102,000
45,200
21,300
36,700
7,200
3,500
26,900
15,000
2,500
663,050
24,200
2,800
1,400
1,920
30,320
855,240

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Moreover, the towns of the three mentioned districts have regular and continuous needs
arising from population growth. Data on building permits allocated by the Office of
Urbanization below is a clear indication.

2000
2001
2002
2003
2004
2005

Bint Jbeil
Bldg Permits Surface in m2
N/A
N/A
550
390
388
430

N/A
N/A
220,000
156,000
212,406
177,000

Marjeyoun & Hasbaya

Bldg Permits
Surface in m3
122
52,000
271
110,000
339
135,000
234
95,000
232
93,000
240
94,679

Furthermore, unforeseen needs may arise due to the large number of UNIFIL troops that are
residing in the South region specifically Bint Jbeil, Marjeyoun, and Hasbaya.

3.2 Main competition

There are around 22 concrete hollow block factories in Marjeyoun and Hasbaya cazas; 15
factories are in Marjeyoun and 7 small factories are in Hasbaya.
These factories will not pose a threat to the concrete hollow block plant on condition that the
plant will offer high quality blocks at same prices.

3.3 Target market

The factory will be able to accommodate the construction needs of the South region and
specifically Marjeyoun, Bint Jbeil, Hasbaya, and other nearby areas.

3.4 SWOT Analysis

STRENGTHS
It will be a unique technically advanced
factory due to the presence of small
traditional factories in the region.
It will facilitate construction needs by
providing the most basic and needed
construction element; concrete hollow
block.
The factory will have a strategic location in
Marjeyoun where there are wide and urgent
reconstruction activities.
OPPORTUNITIES
The construction market is a very active
sector and there is a constant demand for
construction materials especially in the
South.
The reconstruction efforts following the July
2006 war are leading to an increase in
demand for construction materials.
Unforeseen construction needs in addition to
the existing urgent construction needs due
to the war destruction may arise due to the
large number of UNIFIL troops that are
residing in the South region specifically Bint
Jbeil, Marjeyoun, and Hasbaya.

Marjeyoun - Feasibility Study Concrete Hollow Block Factory V.2

WEAKNESSES
Generally, demand is seasonal, where
winter is considered a low season.

THREATS
Environmental threats include the
economic recession in the country and
the regions closeness to Israel and the
fear of another war.
The increase in the cost of labor
following the war and the political
instabilities.
Fluctuations in the prices of raw
materials and cements.

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Marketing Plan

The marketing objectives of the concrete hollow block plant consist in capitalizing on its
competitive advantages.

High quality products.

Competitive and attracting prices due to lower transportation costs to neighboring
construction sites.
Existence of a solid demand for reconstruction efforts specifically post the July 2006
war.

4.1 Marketing Strategy

The concrete hollow block factory will base its marketing strategy on the following:

An informative pamphlet could be developed displaying the factorys product. This

pamphlet will be distributed to all contractors and consultants working on projects in the
South.
The concrete hollow block plant manager/owners should develop direct contacts with
families looking for rehabilitating their properties in Marjeyoun, Bint Jbeil, Hasbaya, and
other nearby areas.

4.2 Pricing
The prices of the concrete hollow blocks will essentially be determined by market conditions.
For the study, we assumed the following average pricing structure based on current market
prices.

Pricing
Block Length
10 cm
15 cm
20 cm

Price ($)
0.23
0.35
0.46

The factory will apply differentiated pricing and discounts according to the quantity of blocks
purchased and to the client loyalty.

4.3 Sales Channel

The concrete hollow block plant will establish strategic alliances with consultants, contractors
and other professionals and businesses in the construction sector in the South. Promotion of
the concrete hollow block products will be done mainly through direct contacts by the owner.
The targeted regions will mainly cover Marjeyoun caza and neighboring cazas such as Hasbaya
and Bint Jbeil.

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Financial Plan

This section details the calculations, assumptions and methodology used as a basis for the
projections of the expected financial performance of the concrete hollow block plant.

5.1 Major assumptions

The projections are based on conservative assumptions as well as market performance. They
take into consideration the economic situation in the caza.

The following table shows the sales growth assumptions:

Sales growth

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

10%
5%
5%
3%
2%
0%
0%

The sales growth assumptions are based on plant capacity that starts with 80% of its capacity
in the first year and then gradually increases to reach its full capacity by year 7.
The following table summarizes the income statement assumptions. The cost of sales and
operating charges are mainly based on market levels.

Income Statement Assumptions

Cost of materials
Average sales price USD
Blocks production capacity
Maintenance & Repairs
Fuel
Annual increase in general expenses
Increase in salaries
Increase in rental expenses
Income Tax Rate

64%
0.35
3,500
0.5%
1.7%
4%
2%
5%
2%

of sales
per block
per day
on sales
on sales
annually
annually
every 3 years

The plant capacity is assumed to be at 3,500 blocks per day; work days are around 300 days
per year.
The sales price per block varies depending on the size of the block as displayed in the below
table.

Length
10 cm
15 cm
20 cm

Price ($)
0.23
0.35
0.46

Therefore, average sales price accounts for the average of the block sizes that the plant will
offer.
General expenses are assumed to increase by 4% annually. Salaries are assumed to increase
by 2% annually.
The income tax rate is estimated at 2% (individual establishment).

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Accounts receivable are estimated at 2 months of sales. Inventories are estimated at 2

months of cost of materials. The accounts payable are based on 1 month of cost of materials.

Balance Sheet Assumptions

Accounts receivable
Inventories
Accounts payable
Expenses payable

2
2
1
5%

months of sales
months of COGS
months of COGS
of general expenses

The depreciation rates are based on International accounting standards as shown in the below
table.

Depreciation rates
Plant machinery
Fixtures & furniture
Vehicles
computer & office eqpt
Establishment Costs

5.2

10%
10%
12%
20%
33%

Projected income statement

Concrete Hollow Block Plant
Income Statement

Year 1
294,000
294,000

Year 2
323,400
323,400

Year 3
339,570
339,570

Year 4
356,549
356,549

Year 5
367,245
367,245

Year 6
374,590
374,590

Year 7
374,590
374,590

188,160
40,800
4,998
5,000
1,470
4,350
244,778
49,222
17%

206,976
41,616
5,498
5,000
1,617
4,350
265,057
58,343
18%

217,325
42,448
5,773
5,000
1,698
4,350
276,594
62,976
19%

228,191
43,297
6,061
5,250
1,783
4,350
288,932
67,616
19%

235,037
44,163
6,243
5,250
1,836
4,350
296,879
70,366
19%

239,738
45,046
6,368
5,250
1,873
4,350
302,625
71,965
19%

239,738
45,947
6,368
5,513
1,873
4,350
303,788
70,801
19%

Electricity charges
600
Telephone charges
1,200
Salaries & Social Security Charges-Administrative
24,000

624
1,248
24,480
3,666
1,040
31,058
27,285
546
26,739
8%

649
1,298
24,970
3,668
1,082
31,666
31,310
626
30,684
9%

675
1,350
25,469
3,200
1,125
31,819
35,797
716
35,082
10%

702
1,404
25,978
3,200
1,170
32,454
37,912
758
37,153
10%

730
1,460
26,498
2,600
1,217
32,505
39,460
789
38,671
10%

759
1,518
27,028
2,600
1,265
33,171
37,631
753
36,878
10%

Sales
Total Revenues
Cost of sales

Cost of sales-materials
Wages-production
Fuel
Rent
Maintenance & repairs-equipment
Depreciation machines & vehicles
Total cost of sales
Gross margin
Gross profit margin%
GENERAL & ADMINISTRATIVE EXPENSES

Depreciation expenses
Other expenses
Total General & Administrative Exp
Earnings Before Tax
Tax expenses
Net Income
Net profit Margin

3,666
1,000
30,466
18,756
375
18,381
6%

The projected income statement shows an increase in net profit margins that reach 10% in
the 7th year of operations. These levels are expected to be reached through a gradual increase
in sales.
The increase in volume of sales is expected to allow higher net earnings, which are projected
to reach $36,878 by year 7.

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5.3 Projected balance sheet

The projected balance sheet shows the assets and liabilities of the company based on the
feasibility assumptions.

Concrete Hollow Block Plant

BALANCE SHEET
Cash & banks
Accounts receivable
Inventory
Total current assets
Plant machinery
Fixtures & furniture
Vehicles
Computer & Office Equipment
Establishment expenses
Accumulated depreciation
Net fixed assets
TOTAL ASSETS

Year 1
20,265
49,000
31,360
100,625
31,500
12,000
20,000
3,000
2,000
8,016
60,484
161,109

Year 2
24,558
53,900
34,496
112,954
31,500
12,000
20,000
3,000
2,000
16,032
52,468
165,422

Year 3
32,159
56,595
36,221
124,974
31,500
12,000
20,000
3,000
2,000
24,050
44,450
169,424

Year 4
38,568
59,425
38,032
136,024
31,500
12,000
20,000
4,000
2,000
31,600
37,900
173,924

Year 5
47,555
61,207
39,173
147,935
31,500
12,000
20,000
4,000
2,000
39,150
30,350
178,285

Year 6
56,833
62,432
39,956
159,221
31,500
12,000
20,000
4,000
2,000
46,100
23,400
182,621

Year 7
66,562
62,432
39,956
168,950
31,500
12,000
20,000
5,000
2,000
53,050
17,450
186,400

LIABILITIES & OWNERS EQUITY

Liabilities
Accounts payable
Expenses Payable
Current Liabilities
Total liabilities
Invested capital
Owner's equity
Total owners' equity
TOTAL LIAB.& OWNERS EQUITY

15,680
3,630
19,310
19,310
123,419
18,381
141,799
161,109

17,248
3,700
20,948
20,948
123,419
21,055
144,473
165,422

18,110
3,772
21,883
21,883
123,419
24,123
147,542
169,424

19,016
3,858
22,874
22,874
123,419
27,631
151,050
173,924

19,586
3,933
23,520
23,520
123,419
31,347
154,765
178,285

19,978
4,010
23,988
23,988
123,419
35,214
158,632
182,621

19,978
4,102
24,080
24,080
123,419
38,902
162,320
186,400

Year 1

Year 2
18,381
26,739
24,066
21,055

Year 3
21,055
30,684
27,616
24,123

Year 4
24,123
35,082
31,573
27,631

Year 5
27,631
37,153
33,438
31,347

Year 6
31,347
38,671
34,804
35,214

Year 7
35,214
36,878
33,190
38,902

Owner's equity
Begin. Owner's equity
Net income
Owners' Withdrawals
Ending owner's equity

18,381
18,381

The owners can start withdrawing cash in year 2.

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5.4 Projected cash flows

Concrete Hollow Block Plant
STATEMENT OF CASH FLOWS

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Net income
Adjustments to reconcile net income
to cash provided by operating activities
Depreciation
Changes in receivables
Changes in inventories
Changes in accounts payables
Changes in general expenses
Total Adjustments
Cash provided by operating activities

18,381

26,739

30,684

35,082

37,153

38,671

36,878

8,016
(49,000)
(31,360)
15,680
3,630
(53,034)
(34,653)

8,016
(4,900)
(3,136)
1,568
70
1,618
28,358

8,018
(2,695)
(1,725)
862
72
4,533
35,217

7,550
(2,830)
(1,811)
906
86
3,901
38,982

7,550
(1,783)
(1,141)
570
75
5,272
42,425

6,950
(1,224)
(783)
392
77
5,411
44,082

6,950
91
7,041
43,920

Cash Flow from Investing Activities

Capital expenditures
Investment in fixed assets
Net cash used in investing activities

(68,500)
(68,500)

Cash flow from financing activities

Capital
Owners' Withdrawals
Cash provided by financing activities

123,419
123,419

(24,066)
(24,066)

(27,616)
(27,616)

(31,573)
(31,573)

(33,438)
(33,438)

(34,804)
(34,804)

(33,190)
(33,190)

20,265
20,265

20,265
4,292
24,558

24,558
7,601
32,159

32,159
6,409
38,568

38,568
8,987
47,555

47,555
9,278
56,833

56,833
9,729
66,562

Cash at beginning of year

Changes in cash
Cash at end of year

(1,000)
(1,000)

(1,000)
(1,000)

The projected statement of cash flows shows the initial net investment in fixed assets and the
capital expenditures of the projected years. The cash flow statement also shows the net
invested capital by the owners.
The statement shows the owners withdrawals that start in year 2.

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5.5 Projected ratio analysis

Ratio Analysis
Year 1 Year 2 Year 3
Year 4
Year 5
Year 6
Year 7
Liquidity Ratios
Current Ratio
5.21
5.39
5.71
5.95
6.29
6.64
7.02
Quick Ratio
3.59
3.75
4.06
4.28
4.62
4.97
5.36
Working Capital
81,315 92,005 103,092 113,150 124,415 135,232 144,870
Profitability Ratios
Gross Profit Margin
17%
18%
19%
19%
19%
19%
19%
Net Profit Margin
6%
8%
9%
10%
10%
10%
10%
Financial Strength
Total Debt to Owners' Equity
14%
14%
15%
15%
15%
15%
15%
Management Effectiveness
Return on Assets=ROA
11%
16%
18%
20%
21%
21%
20%
Return on Equity=ROE
13%
19%
21%
23%
24%
24%
23%
Return on Investment = ROI
30%
51%
69%
93%
122%
165%
211%
Sales / Business Days (360)
817
898
943
990
1,020
1,041
1,041
Asset Management (Efficiency)
Total Assets Turnover: Sales/tot assets
182% 196%
200%
205%
206%
205%
201%
Total Debt to Total Assets
12%
13%
13%
13%
13%
13%
13%
Working Capital Cycle
Days Sales Outstanding
60
60
60
60
60
60
60
Days of Inventory
60
60
60
60
60
60
60
Days of payables
30
30
30
30
30
30
30
Working Capital Turnover=Sales/Working Capital
3.6
3.5
3.3
3.2
3.0
2.8
2.6

The current ratio, which is computed by dividing current assets by current liabilities, witnesses
a major increase over the years led by higher levels of inventories.
The quick ratio, which is the same as the current ratio except that it excludes inventories
increases rapidly over the years as accounts receivable increase. The current and quick ratios
demonstrate the capability of the company to quickly meet its short term liabilities.
The return on average assets, which is computed by dividing net profits by total assets, shows
how much profit the company is able to achieve from the use of its assets. This ratio
fluctuates around an average of 18%.
The total assets turnover shows how well the management is making use of its assets. The
assets turnover is computed by dividing sales over total assets. It is expected to increase with
the growth in sales to reach 201% in year 7.
The gross profit margin improves over the years with the growth in sales. The operating
margins and the net profit margins improve as well.
The return on average equity shows healthy levels fueled by the growth in profitability. Also
the return on investment shows increasingly high levels that reach 211% in year 7.
The internal rate of return is 22.6% and the payback period, which is the period necessary to
pay back the investment, is 5 years 4 months.

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5.6 Break-even analysis

Concrete Hollow Block Plant

Break-even Analysis
Total Revenues
Total Variable Costs
Total Fixed Costs
Break-even Revenues

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

294,000
194,628
80,616

323,400
214,091
82,024

339,570
224,795
83,464

356,549
236,035
84,716

367,245
243,116
86,217

374,590
247,978
87,151

374,590
247,978
88,981

238,509

242,675

246,936

250,639

255,080

257,843

263,257

The above table shows the break even revenues required in each year to cover operating
expenses. Revenues exceeding these levels start producing net income. Thus, in year 1,
revenues of $ 238,509 are needed to break even.

5.7 Sensitivity Analysis

A worst-case scenario is taken by assuming a slower sales growth that even does not reach
full capacity by year 7.
In this case, the concrete hollow block factory will have an average profitability of $26,246
annually. The internal rate of return is 19%. The payback period is 6 years and 1 month.
A best-case scenario is developed considering faster sales growth to reach target where the
plant will start operating at full capacity since year 3.
This scenario gives an average profitability of $33,706 annually. The internal rate of return is
23% and the payback period is 5 years and 1 month.

Sensitivity Analysis
Average yearly sales

Average Net Income

Average Net profit margin
Internal rate of return
Payback period in years

Worst-case
329,940

26,246
8%

Most-likely
347,135

31,941
9%

Best-case
352,464

33,706
9%

19%
23%
23%
6 years 1 month 5 years 4 months 5 years 1 month

These results show that the project is feasible, especially if it is well-managed providing
quality at affordable prices and if the marketing and distribution activities are well developed.

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Conclusion and Recommendations

The market for construction materials has been growing over the years. Currently, a major
opportunity appeared for faster growth following the war of July 2006 and the reconstruction
efforts.
In order to achieve good results, there are some essential success factors, which include:

A key success ingredient in this sector and especially in the region is the ability to
produce concrete hollow blocks of high quality at same prices.

The ability to deliver on time good quality products coupled with good servicing is also an
important factor for success.

The plant should capitalize on its major advantages of proximity to all the cazas in the
South where most of the reconstruction activities are taking place.

Economic Impact Evaluation

The concrete hollow block plant in itself will create 15 jobs in Marjeyoun.
A hollow concrete block factory operating at full capacity would be sufficient in meeting the
needs for reconstruction in the Cazas of Marjeyoun, Hasbaya, and Bint Jbeil where most of the
urgent reconstruction activities are.
The concrete hollow block is expected to have a positive effect on the whole socio-economic
environment of the caza.

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