marketing executive summary

Eastern Agrow Executive Summary 1.0 Introduction The following is a business plan for the proposed development of Eastern Agrow in the Yorkton area. Eastern Agrow is the vision of Curtis Kerluke and this plan describes in detail the focus and vision he has for Eastern Agrow. The purpose of this plan is to investigate the feasibility and profitability in developing this business and to acquire new interest of possible investors in Eastern Agrow. Eastern Agrow will be an independent farm service retailer with dry fertilizer blending, anhydrous ammonia, agricultural chemicals, and fuel available for retail. The location will be North of Yorkton near the #9 Highway. The objectives of this development are to be actively involved in agriculture, provide excellent service allowing an increased clientele base, and to train staff properly and professionally. The company also strives to provide fair and flexible credit to customers, and to pay down the long term debt creating a profitable long term business. The business plan for Eastern Agrow has been divided into four aspects: operations plan, marketing plan, human resources plan, and financial plan. 2.0 Operations Plan The operations of Eastern Agrow are steady throughout the year. The fuel retail business allows steady business during the winter months but the majority of business will be during the spring, summer, and fall. The area provides an intensive agricultural setting, with high input farming common practice. Anhydrous ammonia will be delivered to customers, whereas dry fertilizer and chemical will be retailed from the site. An initial 9% share in the market is expected, with growth in subsequent years until a projected long term market share of 16% is achieved. With these predictions, Eastern Agrow should realize an Internal Rate of Return of 35%. The operations of Eastern Agrow will allow a substantial return as seen in the Sales Revenues and Gross Margins over the first five years of operations. Comm 492.3 College of Agriculture and College of Commerce, University of Saskatchewan ivi Eastern Agrow Table 1. Projected Sales Revenues and Gross Margins 2004 Sales Revenue: Fertilizer Chemical Fuel Total Revenue Cost of Goods Sold Gross Margin 2,291,086 1,294,959 2,292,500 5,878,544 5,505,303 373,242 2009 Sales Revenue: Fertilizer Chemical Fuel Total Revenue Cost of Goods Sold Gross Margin 4,138,367 2,150,036 4,387,376 10,675,779 9,918,774 757,005 2005 2,899,635 1,618,698 2,953,125 7,471,458 6,947,114 524,344 2010 4,221,135 2,150,036 4,503,598 10,874,768 10,113,315 761,453 2006 3,388,114 1,861,503 3,496,719 8,746,336 8,121,319 625,017 2011 4,515,993 2,257,538 4,850,811 11,624,341 10,812,116 812,226 2007 3,792,517 2,047,653 3,957,078 9,797,249 9,091,499 705,750 2012 4,606,313 2,257,538 4,972,843 11,836,694 11,019,451 817,243 2008 4,057,223 2,150,036 4,271,154 10,478,413 9,725,768 752,645 2013 4,698,439 2,257,538 5,094,876 12,050,853 11,228,492 822,361 These results show the gross margin from the operations of this venture. These returns are not available if Eastern Agrow does not provide strong service and fair pricing. These concepts are discussed in the Marketing Plan. 3.0 Marketing Plan The marketing plan for Eastern Agrow outlines the market available to the company. It investigates competition within the area, the strengths and weaknesses of the company, as well as the opportunities and threats of being in the industry in the short and long term. It explored the potentials within the Yorkton market including anhydrous ammonia, so Eastern Agrow targeted that market with development of anhydrous ammonia retail services. The fuel retail gives Eastern Agrow a competitive advantage, as it provides a one stop full service independent retail for producers. 4.0 Human Resources Eastern Agrow will have six full time employees on staff as well as a summer assistant to help in the busy summer season. A general manager, agronomist, secretary, and three truck drivers will be kept on staff. The following shows the organizational structure of the business. Comm 492.3 College of Agriculture and College of Commerce, University of Saskatchewan iivi Eastern Agrow Board of Directors / Shareholders Manager/Agronomist Agronomist NH3 Transport / Dry Fertilizer Transport Truck Driver NH3 Transport / Dry Fertilizer Transport Truck Driver Petroleum Transport Truck Driver Secretary Summer Student (1) Figure 1. Organizational Chart of Eastern Agrow Strength in the human resources of the company is seen as many of the full time employees have strong connections and an existing customer base in the Yorkton area. 5.0 Financial Plan A majority portion of the initial equity investment for Eastern Agrow will be made by Curtis Kerluke. As stated, this plan is intended to attract new investment. A large portion of the investment needed will come in the form of both long term debt and an operating loan. The operating loan is necessary to capture the possible returns by prebuying fertilizer in the fall and storing it for spring retail at an inflated price. When a strong evaluation of all the variables of the company were examined and determined both fairly and conservatively, financial ratios for the company were determined. The ratios turned much more positive and attractive as the company gained more market share. After 10 year projections were completed, key results were identified and are listed below. Comm 492.3 College of Agriculture and College of Commerce, University of Saskatchewan iiivi Eastern Agrow Table 2. Base Case Results Key Variables Market Share (2004) Growth in Market Share (2005) Fertilizer Purchase Price (%) Fertilizer Selling Price(%) Chemical Margin Fuel Sales (Litres) Base Case 100% A 100% 100% 10% 3,500,000 2004 373,242 371,837 1,404 1,136 0 2005 524,344 363,732 160,612 129,903 0 Net Present Value Internal Rate of Return External Rate of Return 697,000 35.1% 22.1% Gross Margin Total Expenses Income Before Taxes Net Income Dividends 2006 625,017 354,841 270,176 209,592 0 2007 705,750 344,845 360,905 271,433 0 2008 752,645 334,324 418,321 310,567 0 2009 2010 2011 2012 2013 Gross Margin 757,005 761,453 812,226 817,243 822,361 Total Expenses 321,683 307,373 291,580 274,016 254,508 Income Before Taxes 435,322 454,081 520,646 543,227 567,853 Net Income 322,156 334,941 380,312 395,704 412,489 Dividends 0 0 791,006 171,115 161,996 NOTE: A - Market share growth of 25% after 1 year, decreasing to 15%, 10%, 5% in the subsequent years. In 2011, another 5% growth increase is seen, leveling at 16% market share In addition, the potential best and worst case scenarios are evaluated with the probable outcomes of each situation. As a best possible situation the Internal Rate of Return is 76.6% where as the worst case has an IRR of -1.9% and is summarized in Table 3. Table 3. Base Case, Worst Case, and Best Case Results Variable Market Share (2004) Growth in Market Share (2005) Fertilizer Purchase Price (%) Fertilizer Selling Price(%) Chemical Margin Fuel Sales (Litres) IRR** Base Case Worst Case Best Case 100% A 100% 100% 10% 3,500,000 35.1% 80% B 103% 97% 5% 3,000,000 -1.9% 120% C 99% 102% 12% 4,500,000 76.6% Comm 492.3 College of Agriculture and College of Commerce, University of Saskatchewan ivvi Eastern Agrow NOTE: A - Market share growth of 25% after 1 year, decreasing to 15%, 10%, 5% in the subsequent years. In 2011, another 5% growth increase is seen, leveling at 16% market share B - Market share growth of 15% for years 2 and 3, 10% for the next 3 years, 5% in 2010 and 2011 and 0 growth in subsequent years. C - Market share growth of 25% after year 1, 20%, 15%, 10%, 5% and 0 in subsequent years ** - IRR for Worst Case and Best Case was determined as a combination of each variable. The following table shows the sensitivity analysis of Eastern Agrow’s most critical variables, market share, growth in market share, fertilizer purchase price, fertilizer selling price, chemical margin, and fuel sales. Table 4. Critical Variables Critical Variables Critical Value Market Share (2004) Growth in Market Share (2005) Fertilizer Purchase Price (%) Fertilizer Selling Price(%) Chemical Margin Fuel Sales (Litres) Base Case IRR = 0% 9% 25% 100% 100% 10% 3,500,000 3% 0% 111% 90% -8% 0 Allowable Break Change Even Cash (IRR = 0) -67% 5.5% -100% 0% 11% 106.5% -10% 94% -180% 0% -100% 1,100,000 Allowable Change (Cash = 0) -39% -100% 6.5% -6% -100% -69% This sensitivity analysis helps to determine the viability of the operations of Eastern Agrow. In the case of cash break-evens, the results indicate that selling prices can drop quite far and a substantial rise in fertilizer purchasing costs can be observed before Eastern Agrow’s IRR is equal to zero. However cash flow deficits do occur under both circumstances. The stability of these financial results can be observed more closely by looking at the margins used in the calculations. It is safe to assume that margins will not fluctuate outside the boundaries described. If that is the case, then all scenarios have been examined and Eastern Agrow is a very promising financial opportunity. Comm 492.3 College of Agriculture and College of Commerce, University of Saskatchewan vvi Eastern Agrow 6.0 Conclusion One can conclude that Eastern Agrow would be a profitable and feasible business development in the Yorkton area, as well as an excellent investment opportunity. Under the base case situation Eastern Agrow provides an internal rate of return of 35.1%, which is above the required 15%. In addition to another market for their commodities, shareholders will also earn dividends by 2011. Eastern Agrow will also benefit the local community by creating new jobs and additional economic activity for local area businesses. Comm 492.3 College of Agriculture and College of Commerce, University of Saskatchewan vivi