The Report consolidated the business forecasts of the main factory, Shenzhen, Qingdao and Suzhou factories.
Sales Forecast
The total consolidated sales amounts to RMB252M (US$37M), with the most significant contribution from the Shenzhen factory, RMB123M (US$18M), which accounts for 49% of the Group.
The consolidated Gross Profit is RMB82M (US$12M), which is 33% to Sales.
The consolidated Net Profit after Tax is RMB41M (US$6M), which is 16% to Sales.
Further Improvements
After the initial review, further improvements on Group¡¯s performance are considered in the areas of Sales, costs and operating expenses as follows:
1. APT is a family-owned business with no proper philosophy in running the business. This situation should be reviewed and improved by setting up a new management team as agreed by IMOT (such arrangement will need to be agreed as one of the terms of the acquisition).
2. Due to the tight cashflow situation, APT currently has to incur 8% higher material procurement costs and therefore eats up the profit by the same magnitude. With the forecast, the cashflow will be improved and the additional 8% of material procurement costs will immediately be waived and saved.
3. In order to be the Industry Leader to dominate the China paper market or to at least have a significant market share in the ¡°Honey Comb Paper Products¡± market, investment on the most latest technology, i.e. purchase of the machines directly from Holland, will help achieve the Goal by boosting the sales and production volume in multiples.
4. Being part of the Due Diligence findings, it was found that most of the Shenzhen factory premises were not fully occupied. The rental expenses can be significantly reduced by relinquishing 30-50% of the existing rental space, leading to a saving of at least RMB3 million (US$0.44 million).
5. Further review on cost efficiency can be done by the new Management team.
6. The actual tax savings could be increased further, thus, the net profits after tax should be improved.
Potential Concerns of this Forecast
There are several factors that may prohibit the company from achieving the estimated profits after tax of US$6M. They are:
1. The progress of the audit - We are still in the middle of the audit in January 2010 when the whole acquisition is planned to be officially completed in March to April 2010.
2. Company infrastructure ¨C It requires time to set up proper company structure and new system after the new management team is on board.
3. Technology - The machinery from Holland machine may not be delivered before the end of the year to meet the requirements.
Investment Return
If all the facilitating conditions are fulfilled, it will only take 3 years and six months period at an average ROI rate of 27% p.a. to pay back the cost of investment.
