IQ Business

Executive Summary
Production and sales of solid wooden boards

CEO Andrey Kharchenko Business-analyst Anton Sukhanov Business-analyst Alexander Skobarev

Т.: +7(391) 2978445 E.: info@iq-b2b.ru iqbusiness@yandex.ru А.: Krasnoyarsk, 15 Baturina st. www.iq-b2b.ru

Krasnoyarsk, 2009. Copyright IQ BUSINESS 1. Company profile

EXECUTIVE SUMMARY 2009

The company specializes in production of solid wooden boards made of Angarsk pine 1. The company is located in Krasnoyarsk. Long-term contracts with large timber enterprises secure stable supplies of round wood for the whole year regardless of weather conditions. Efficient operations provide the company an ability to promptly produce and deliver wooden boards at the order of a customer. Project output - 500 m3/month Average production volume – 350 m3/month Enterprise maturity – 2 years Personnel employed– 100 Corporate form – OOO (LLC) Equipment - «Weinig AG» (2006) Production yard – 2500 Ground is rented for 49 years Equity capital is divided between share holders in following proportion: 90% - private owner, 10% - corporate owner.
Table 1 – SWOT analysis

Opportunities Internal origin Stable, experienced team Up-to-date equipment Transparent business model Increase in the enterprise output

Threats

Nonoptimal business processes Lack of owned timber sources

External origin

Target market growth Demand for deep processing of round wood

Decrease in aggregate consumption Entrance of new competitors

2. The following statements characterize growth potential of Krasnoyarsk region timber industry: - Forests occupy 69% of Krasnoyarsk region territory. - Krasnoyarsk region forests are the largest (7.8 billion m3) source of timber in Russia. - Volume of lumbering is app. 8.9 mil. m3, which is 14.9% of prescribed cut. - Timber production output is app. €160 000 000, which is 2.8% of Russian timber industry production volume. - Main factors which make possible the boost of timber production volume are: excess of timber recourses, production potential and availability of qualified stuff. - Principal product of Krasnoyarsk timber industry is round wood. - The most prospective vector of the industry development is intensification of timber processing.
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Angarsk pine provides high quality timber, which is valued for its good density.

EXECUTIVE SUMMARY 2009

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Increase in round wood export tax from 25 to 80 percent (expected in 01.01.2010) will likely stimulate demand for intensive processing of timber. Production volume of Russian timber industry decreased by 15% during the first quarter of 2009.

3. Product characteristics Solid wooden board is natural, ecologically clean product of wood deep processing. It is used for production of following goods: - ladders, - furniture panels, - table tops, - decorative panels and elements, - parquet, - windowsills, - doors and etc. Advantages of the wooden board over any other materials used in furniture production are these: - Due to several specialties of production process solid wooden boards become resistant to deformation, cracking and drying shrinkage; -

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Solid wooden boards preserve natural texture of wood surface; Wooden boards are ecologically clean which enables their use in furniture and interior elements production; The level of quality of the wooden boards is excepted in the EU; Overall size of wooden board can be varied easily depending on customers requirements; Furniture made of wooden boards can regulate air humidity indoors; it is safer and more durable than furniture made of chipboard.

Owing to described features demand for solid wooden board tends to be high both on Russian and international market 4. Business model
Diagram 1– Cost structure, rubles per 1 m3 of wooden board

According to the diagramm, the prime cost of 1 m3 production is $560. At present delivey agreements are concluded with companies from following regions:

EXECUTIVE SUMMARY 2009

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Tyumen Moscow Ivanovo Murom Barnaul

The company exports wooden boards to: - Hungary - Ukraine - Kazahstan The average delivery price of 1 m3 is $755. Thus when month output is 350 m3 EBIT is $68 460 per month.

5.

Team Management of the company has seccessful experience in doing business in timber industry. Senior managers are people of many accomplishments. The company also employs the most qualified workers in the city.

6. Transaction conditions Estimated price of the company is $5 800 000. It is also possible to join the company with some timber enterprise which owns recourses of round wood. As a result of this consolidation the following synergy effects would arise: - Decrease in production cost owing to vertical integration of business; - Scale economy effect; - Strengthening of market position - Decrease in borrowed capital cost. Price of consolidated enterprise is $6 770 000 At present we observe a tendency for consolidation of assets in wood industry. In the future this trend may provide an investor with a possibility to advantageously sell the company to a competitor, or expand the market share by acquisition of other prospective enterprises.