The plan is to set up 3magination as soon as the funding and parts of the recruiting have been successful. This business plan assumes, that by the end of 2014, all necessary foundations will have taken place and the company is able to start slowly in 2015.
7.1 Funding
In order to have a successful launch and the possibility to exploit the anticipated growth potential, a solid funding is necessary from the very beginning onwards. As stated before, the three founding partners will own together 60%, 24% by the managing director and 18% by the finance manager and the operations manager, respectively.
7.1.1 Equity Investors
Regarding the remaining 40%, 3magination intends to raise money from angel investors in a first seed round. The company’s NPV amounts to more than EUR 25.5 million, therefore, 40%
could be potentially worth more than EUR 10.2 million. However, in the start-up phase, 3magination would only ask for EUR 800,000 in exchange for this share. The company would prefer to have at least two to three different investors, none of them owning more than 20%.
Furthermore, the majority of investors should get the possibility of an early exit, preferably in the first few years of operations.
7.1.2 Bank Loans
Long-term bank loans are only required at the initial start-up phase of the company in order to finance the necessary fixed assets. The loan would be secured through the 3D printers, and would amount to 80% of their value, which is EUR 1.92 million. The interest rate is estimated at 7.00% p.a., which is a 5.72% premium over the 8 year Euro swap rate. (Bloomberg, 2014).
This represents fairly the risk profile of the company. The agreement with banks should be negotiated in a way that the repayment of proceeds only starts in the second year of installation, i.e. 2016. Another option to the loan would be to lease the 3D printer, however the cost
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On the other hand, a revolving short-term facility should be put in place right at the beginning in order to be able to finance working capital shortages. This short term loan could have a limit of EUR 50,000, whereas only EUR 40,000 are needed according to the forecast calculation in the first year of operation. The interest rate is estimated with 10.00% p.a.
7.2 General Assumptions
In order to keep the business plan calculations clean and easily understandable for investors, none of the possible accounting tweaks has been applied. As a result, straight-line depreciation has been chosen over other methods and all assumptions are industry standard.
In line with this, no finance optimization has been taken into account, regarding money market investments of cash positions and hedging strategies regarding interest rates and costs of material or utilities.
7.3 Profit and Loss Statement
Most of the figures have been derived during this business plan, therefore only items previously not mentioned will be described in the following.
Material cost is being estimated to make up 25% for metals and 15% for polymer production out of the total costs from industry experts. (Wu, 2014; Tu, 2014) Since the allocation in 3magination is about 50/50, a 20% cost of material has been assumed.
Maintenance cost and machine consumables are information provided directly by the supplier and backed up through market research institutes. (EOS GmbH, 2014b; Roland Berger, 2013).
Other expenses mainly include: Start-up costs, insurance premiums, fees for the chamber of commerce compulsory membership, and diverse further expenses.
Table 16: Pro forma income statement in EUR (Source: own compilation).
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Due to the large investments and the low sales volume in the first year, a loss of EUR 732,924 is anticipated. However, the company breaks even already in the second year of operation and makes a small profit of EUR 286,394. From there on, the net income and sales ratio starts accelerating up to 34% in 2019.
2015 2016 2017 2018 2019
1,412,526 2,825,053 4,237,579 5,085,095 6,102,114
Material cost 450,272 461,559 546,596 586,174 650,112 Maintainance cost 96,000 96,000 120,000 120,000 144,000 Machine consumables 12,000 12,000 15,000 15,000 18,000
- - - - -
558,272 569,559 681,596 721,174 812,112 854,255 2,255,494 3,555,983 4,363,921 5,290,001
60.48% 79.84% 83.92% 85.82% 86.69%
807,692 823,846 948,323 1,029,290 1,103,721
100,000 102,000 150,000 153,000 156,060
50,000 51,000 70,000 90,000 100,000
311,647 311,647 367,897 367,897 442,897
100,000 120,000 144,000 172,800 207,360
24,000 24,000 24,000 24,000 24,000
32,640 33,293 36,866 37,603 46,450
4,800 4,896 4,994 5,094 5,196
242,308 247,154 284,497 308,787 331,116
20,000 20,400 20,808 21,224 21,649
1,693,087 1,738,236 2,051,385 2,209,695 2,438,450 (838,832) 517,258 1,504,598 2,154,227 2,851,552 (527,185) 828,905 1,872,495 2,522,124 3,294,449
138,400 135,400 117,600 100,800 84,000
(244,308) 95,465 346,750 513,357 691,888 (732,924) 286,394 1,040,249 1,540,070 2,075,664
-52% 10% 25% 30% 34%
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7.4 Cash Flow Statement
The cash flow statement gives a good overview on the health of 3mgination’s relations of operating, investment and financing activities. As mentioned in chapter 7.2, the cash position is not optimized for financial gains because the focus of this business plan lies on the operations side.
Working capital adjustments affect accounts receivables and payables as well as inventory.
Sales are assumed to be regular over the year, averaging to the same amounts per month for calculation purposes.
In Europe it is standard throughout all industries to get paid 30 to 60 days after the purchase has been done. 3magination calculates a delay of 30 days for presented invoices as well as for accounts payables. Inventory turnover is assumed to be 12, which means that average inventory moves once per month.
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Table 17: Pro forma cash flow statement in EUR. (Source: own compilation).
3magination is able to produce a sustainable amount of cash at the beginning of its third year of operation.
7.5 NPV and Sensitivity Analysis
A net present value (NPV) analysis is essential in order to evaluate the company and to figure out whether an investment pays off. One of the most essential input variables to calculate the actual NPV is the cost of capital. Hence, a few assumptions need to be made in the following.
Due to the financial crises in Europe, banks and investors apply very different risk premiums to companies, depending on their size, reputation, years of operations, etc. Therefore, it is not easy to estimate the input variables. Estimations are based on Bloomberg results, which
2015 2016 2017 2018 2019
Pro Forma Cash Flow
Cash flows from operating activities
(977,232) 381,858 1,386,998 2,053,427 2,767,552
311,647 311,647 367,897 367,897 442,897 Working capital changes:
Receivables (117,711) (117,711) (117,711) (70,626) (84,752)
Inventories - (38,523) (941) (7,336) (3,298) (5,578)
Payables 41,643 1,003 7,642 3,368 6,324
(780,176) 575,857 1,637,490 2,350,767 3,126,443 (244,308) 95,465 346,750 513,357 691,888 Net cash from operating activities (535,868) 480,393 1,290,741 1,837,410 2,434,555
(2,493,176) 0 (450,000) 0 (600,000)
Net cash from investment activities (2,493,176) 0 (450,000) 0 (600,000)
1,920,000 (240,000) (240,000) (240,000) (240,000)
Increase/ (decrease) of current debt 40,000 (30,000) (10,000) 0 0
1,100,000 (200,000) (350,000) (50,000) (100,000) Net cash from financing activities 3,060,000 (470,000) (600,000) (290,000) (340,000) 30,956 10,393 240,741 1,547,410 1,494,555 Profit before taxation
Net increase in cash and equivalents Adjustments for:
Depreciation
Cash generated from operations Income taxes paid
Cash flows from investing activities Purchase of property, plant and equipment
Cash flows from financing activities Increase/ (decrease) in long-term debt Paid in capital
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unfortunately mostly apply for listed companies and not for start-ups, and an Austrian M&A boutique that prefers to stay anonym.
The risk free rate in Austria amounts to 1.64% as of June 20, 2014. This is the yield of an Austrian treasury bond with 10 years maturity. (Bloomberg, 2014).
Industry beta according to Bloomberg, 2014 for the Austrian market averages to 0.54, which is very low and therefore the M&A boutique’s beta will be applied, which amounts to 1.10.
The market risk premium, which is the compensation investors require for investing in equities rather than risk-free instruments averages to 8.7% in Austria for a start-up company in this field.
The following table summarizes all input variables used to calculate the Weighted Average Cost of Capital (WACC).
Table 18: Computation of WACC.
(Source: own compilation with Data from Bloomberg, 2014 and anonymous M&A boutique).
Considering a neutral scenario, shown in the profit and loss statement as well as the cash flow statement, the NPV amounts to EUR 25.5 million. In order to reflect uncertainty regarding the underlying variables of the NPV analysis, a sensitivity analysis was computed for pessimistic and optimistic scenarios on the following variables:
3magnation’s market size in 2017
Direct cost of goods sold
Market growth rate
Cost of capital
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Table 19 demonstrates the result of the performed analysis:
Table 19: Sensitivity analysis. (Source: own compilation).
The sensitivity analysis shows that out of all variables, a change in the market share makes the largest difference for the NPV. In the worst case, where the company is only able to achieve 3% of the market share in 2017, the company’s NPV deteriorates to negative EUR 5,239,830 whereas in the best-case scenario, where the company is able to penetrate 7% by 2017, the NPV is boosted to EUR 56.3 million. All other changes of variables result in a NPV between the two extremes.
The negative NPVs result from the employment of new personnel in 2017, 2018, and 2019.
Since, these investments will not be made in case that the expected success fails to materialize, the negative NPVs represent only theoretical situations that will not apply in reality.
7.6 Balance Sheet
The balance sheet sums up all previously given data and give the forecast of a yearly snapshot regarding the state of the company.
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Table 20: Pro forma balance sheet. (Source: own compilation).
2015 2016 2017 2018 2019 (732,924) 286,394 1,040,249 1,540,070 2,075,664 367,076 453,469 1,143,718 2,633,788 4,609,452 2,368,718 2,186,115 2,634,006 3,887,443 5,629,432
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This analysis at hand derived step by step all the necessary ingredients to set up a business in the German speaking counties as an additive manufacturing service provider.
In a first stage, a particular emphasis was put on the market analysis, considering size and competitors to evaluate the potential of such a business. Even though 3magination wouldn’t be a first mover in this area, the proposed company would be able to differentiate itself from existing players and profit from the rapid growth forecasted by all major research institutes for the next ten years. Moreover, the market potential of this new technology is estimated to reach 2% of the total manufacturing volume, from todays 0.03%. (Wohlers Associates Inc., 2014).
In a second phase, the company's asset’s, both human and fixed, were described in detail.
Printers were selected based on production speed and building size in the two most advanced technologies on the market, to be able to print a large spectrum of products. Regarding the selection of key personnel, a combination of preceding interviews and 3magination's business model influenced the final structure.
The financial analysis also showed the full potential of the proposed business. The rather conservative assumptions were further scrutinized by a sensitivity analysis. The result shows, that the NPV lies between negative EUR 5.2 million and positive EUR 56.3 million. Since the company’s base scenario is driven by growth and further investments on staff, sales and marketing budgets are taken into account, which wouldn’t be pursued as aggressively if the business environment would differ from the one anticipated.
3magination’s approach, focusing on service and consulting to develop long lasting relation- and partnerships in combination with offering the major 3D printing technologies in metals and polymers, is unique in the German speaking countries. Therefore, it is not a matter if this proposed business venture is going to be successful, but rather, how successful it is going to be.