results of the montenegro forest, timber industry and bio- energy sector study opportunities and...
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RESULTS OF THE MONTENEGRO FOREST, TIMBER INDUSTRY AND BIO-ENERGY SECTOR STUDY
OPPORTUNITIES AND CHALLENGES FOR INVESTORS AND DECISION MAKERS
06.10.2015 | ADRIATIC WOOD DAYS DubrovnikConference on Marketing, Timber, Forest and Wood Products TradeHOTEL SHERATON RIVIERA
PRECIOUS FORESTS
2
BUT NOT EVERYWHERE
3
APPROACH FOR DEFINING FOREST INDUSTRY INVESTMENT OPPORTUNITIES
Policy Analysis
Framework Conditions
Wood Availability and Supply
Existing Forest
Industy and Assets
(Local and Regional)
Markets for Wood
Products
Definition/Identification of Investment Opportunities
Pre-Feasibility Studies of Selected Investment Opportunities
FOREST SITUATION – NATIONAL FOREST INVENTORY
5
Forest area ; 59,5 %
Forest land ; 9,9%
Other land ; 30,6%
Area of forest and forest land (%)
WINFRIED SUESS
MANAGED FORESTS
WINFRIED SUESS 6
CONCESSIONS
ÖBF CONSULTING/ WINFRIED SUESS 7
CURRENT VOLUME INCREMENT
WINFRIED SUESS
SPECIES COMPOSITION
WINFRIED SUESS 9
FOREST AVAILABLE FOR WOOD SUPPLY- POTENTIAL SUSTAINABLE YIELDS
WINFRIED SUESS 11
WOOD BALANCE
WINFRIED SUESS 12
Data on the slides below are mainly from the wood consumption study as broadest based survey reflecting MNE reality.
Detail figures are fluctuating but relations and flows appear to be the best model of the real wood flows at present
TO
TAL
CU
T IN
MO
NTEN
EG
RO
= 1
,09
0,9
77
m³
Pri
vate
Fo
rest
354
,401 m
³
N. Parks 25,000 m³
Urban 15,000 m³
Concession in management unit
(registered)
F.Adm. mngmt.(unregistered)
Wood for heating (registered)
Cut for heating (unregistered)
Public
Fore
st 6
96,5
96
m³
Cut for Industry
Cut for heating (registered)
Wood based Fuel Consumption
732,912 m³
60,721 m³
30,000 m³
144,410 m³
180,000 m³
140,000 m³
495,875 m³
Residues167,790 m³
Details next slide
Wood for Industry (Technical Wood)
525,875 m³
~30,000
m³
395,875 m³
80,000 m³
Exported
Primary wood for
Local Market
Final Producti
on
~80,000 m³
Low quality wood
50,000 m³
Wood fuels consumed in MNE
Wood for Industry (Technical Wood)
525,875 m³
~60,0
00 m
³
Primary Wood
Production
Industrial wood
residue
Wood directly for heating565,122 m³
~20,000 m³
FRAMEWORK OF THE NATIONAL CONCESSION SYSTEM
› The Concession strategy envisioned supporting the revitalization of the timber industry in Montenegro
› Production capacity is a criteria for granting concessions – to give supply security to the industry
› Allocation by public tenders
› Current system started in 2008 (Vektra in 2007) › 7 year to 30 year Concession duration (+ 1 year “concessions”)
› Right to harvest timber
› Further obligations, such as investment into the forest infrastructure
› Currently ~15 big concessionaires (above 10,000 m³ / year)
› 2 concessions in termination procedure; 1 in insolvency procedure
› 7 years-contracts (5 of the big concessions) expire 2015
16
INCOME EXPENDITURES
17
average 2008-2010
2014 plan 20150
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
International Donor contributionRevenues Forest Administration (FA)Concession fees
average 2008-2010
2014 plan 20150
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
9,000,000
10,000,000
Payment to Municipali-ties
Expenditures Forest Administration (FA)
Expenditures MARD + Inspection Service
[ EUR ]
[ EUR ]
OVERVIEW FELLING VOLUMESIN STATE FORESTS (PLANNED / NET REALIZED)
18
Plan
ned
felli
ng FA
Pl
anne
d fe
lling
all
Cons
Plan
ned
felli
ng V
ectra
Realiz
ed fe
lling
FA n
et
Rea
lized
felli
ng a
ll Con
s net
Realiz
ed fe
lling
Vec
tra n
et0
100,000
200,000
300,000
400,000
500,000
600,000
average 2008-20102014
[ m³ ]
GENERAL FOREST ISSUES
› Technical competence of forest management is available
› Forests are mainly protected through topography
› Principal framework conducive
› Increasing demand from neighbouring states are currently deteriorating the situation (Kosovo, Albania, Serbia)
› Enforcement and implementation very poor
› Management needs reorientation to master future challenges
› Local wood industry could play catalytic role, but needs support
21WINFRIED SUESS
FOREST INDUSTRY ANALYSIS AND INVESTMENT OPPORTUNITIES
General Overview
Sawmills70%
Facilities for furniture
production and interior
decoration13%
Plywood facilities
1%
Furniture factories
3%
Independent craftsmen
6% Production of wooden houses
6%
Parquet plants1%
Source: Prof. Branko Glavonjic
FOREST INDUSTRY ANALYSIS AND INVESTMENT OPPORTUNITIES
Sawmills • About 70 % of companies from the wood sector are sawmills;
• Mills saw softwood and hardwood logs;
• Fresh sawn wood exported to the neighboring countries (Serbia, Kosovo and Albania);
• Majority of the companies is operating with old machinery (except Vektra Jakić)
FOREST INDUSTRY ANALYSIS AND INVESTMENT OPPORTUNITIES
Wood import/export
Source: MONSTAT, 2014
2011 2012 2013 2014
0
50
100
150
24.00 22.10 23.9029.00
117.10 115.80108.00
120.50
Export Import
Graph 2: Import/Export value of wood including paper and furniture
2011-2014 (mill euro)
Wood and
wood ar-ticles 18%
Paper products
29%Print 10%
Wood Furniture
43%
Montenegro Wood industry import structure 2014
Wood and
wood ar-ticles 77%
Paper products
13%
Print 7%
Wood Furniture3%
Montenegro Wood industry export structure 2014
INVESTMENT OPPORTUNITIES SELECTED FOR PREFEASIBILITY ANALYSIS
Investment option
Production Capacity
Wood demand Personnel
Investment size
Quality Quantity (m3/a)
Sawmill
30,000 m3 Softwood and hardwood
Mixed quality sawlogs 50,000 40 16.960,000 €
Solid wood furniture panels (1 and 3 layer solid wood panels)
9,000 m3 Kiln dried hard and soft
sawnwood 14,400 30 7.100,000 €
Glued laminated timber 10,000 m3 Kiln dried soft and hard sawnwood
14,500 40 8.690,000 €
Furniture elements 5,760
combinations Solid wood panels 2,800 30 4.197,000 €
Total investment in the value added production (combination of production lines)
14036.947,000 €
Softwood insulation panels 392,000 m3 Wood residues 84,000 60 37.900,000 €
Higher added value through vertical integration Sawmill as the basis input for further production!
FINANCIAL PROFITABILITY – SAWMILL
10 years 15 years
Net present value - 8.048,434 € - 4.936,674 €
IRR - 3,09 % 3,33 %
Payback period 11,56 Years
-30 -20 -10 0 10 20 30
-15
-10
-5
0
5
10
15
20
Sales price
Round wood
Fixed investment
Sensitivity analysis - sawmill
Variation %
IRR in %
FINANCIAL PROFITABILITY – SOLID WOOD PANELS 1 AND 3 LAYER
10 years 15 years
Net present value 785,216 € 4.039,998 €
IRR 9,72 % 14,08 %
Payback period 6,67 Years
-30 -20 -10 0 10 20 30
-30
-20
-10
0
10
20
30
40
Sales price
Sawn wood
Fixed investment
Sensitivity analysis – Solid wood panels 1 and 3 L
Variation %
IRR in %
FINANCIAL PROFITABILITY – GLUED LAMINATED TIMBER
10 years 15 years
Net present value -2.526,546 € -932,338€
IRR 0,15 % 6,01 %
Payback period 9,52 Years
-30 -20 -10 0 10 20 30
-15
-10
-5
0
5
10
15
20
25
30
Sales price
Fixed investment
Sensitivity analysis - Glulam
Variation %
IRR in %
Sawn wood
Gluelam as stand alone option is not feasible, integrated sawmill is required.
FINANCIAL PROFITABILITY – SOLID WOOD FURNITURE
10 years 15 years
Net present value 2.417,171 € 4.701,276 €
IRR 17,71 % 21,06 %
Payback period 4,51 Years
-30 -20 -10 0 10 20 30-5
0
5
10
15
20
25
30
35
40
45 Sales price
Solid wood panels
Fixed investment
Sensitivity analysis - Furniture
Variation %
IRR in %
SOFTBOARD – WOOD FIBREBOARD INSULATION
FINANCIAL PROFITABILITY – SOFTBOARD WOOD FIBREBOARD INSULATION
10 years 15 years
Net present value € 6.442.637,55 € 24.489.413,01
IRR 10,84 % 15,33 %
Payback period 6,69 Years
-30 -20 -10 0 10 20 300
5
10
15
20
25
30
Sales price
Sawn wood
Fixed investment
Sensitivity analysis - Softboard
Variation %
IRR in %
SWOT – SOFTBOARD WOOD FIBREBOARD INSULATION
Internal Strengths
Usage of low quality industrial wood
Low domestic demand for industrial wood.
Internal Weaknesses
High investment costs
Transport costs to external markets (mainly CEE countries)
No wood available in the amounts required for a technically reasonable
mill
External Opportunities
Market trends towards ecological insulation systems for new buildings and renewals (private and non-
private buidlings)
Growing market share for constructions materials with a low carbon foot print
External Threats
High competition with producers in Germany, Switzerland, Slovakia, France which are closer to
main markets.
Wood supply extremely unsecure
SUMMARY
INVESTMENT OPPORTUNITIES SELECTED FOR PREFEASIBILITY ANALYSIS
Position Sawmill Glued
laminated timber
Solid wood furniture panels
1L/3L
Wood furniture elements
Total Softwood insulation
board
Production site 500,000 € 160,000 € 160,000 € 160,000 € 980,000 € 600,000 €
Buildings 2.500,000 € 1.770,000 € 1.770,000 € 1.535,000 € 7.575,000 € 6.150,000 €
Supply and disposal 3.000,000 € 560,000 € 570,000 € 550,000 € 4.680,000 € 2.800,000 €
Machines and equipment 10.300,000 € 4.170,000 € 5.750,000 € 1.572,000 € 21.792,000 € 27.040,000 €
Vehicles 360,000 € 160,000 € 160,000 € 130,000 € 810,000 € 400,000 €
Facilities 50,000 € 50,000 € 50,000 € 90,000 € 240,000 € 200,000 €
Intangible investment 250,000 € 230,000 € 230,000 € 160,000 € 870,000 € 710,000 €
Total investment 16.960,000 € 7.100,000 € 8.690,000 € 4.197,000 € 36.947,000 € 37.900,000 €
2-shift work 3shift work
Output Capacity 30,000 m³ 10,000 m³ 8,748 m³ 5,760 combinations
364,000 m³
Investment costs
FINANCIAL PROFITABILITY – INCL. WOOD FURNITURE ELEMENTS (EXCL. SOFTBOARD)
10 years 15 years
Net present value -7.701.875 € 2.427.547 €
IRR 3,66 % 8,94 %
Payback period 8,73 Years
-30 -20 -10 0 10 20 30
-10
-5
0
5
10
15
20
25
Sales price
Sawn wood Fixed investment
Sensitivity analysis - Integrated Factory
Variation %
IRR (15y) in %
0 €
5,000,000 €
10,000,000 €
15,000,000 €
20,000,000 €
25,000,000 €
30,000,000 €
35,000,000 €
40,000,000 €
16.960,000 €
8.690,000 €
7.100,000 €
4.197,000 €
36.947,000 €37.900,000 €
7.087,500 € 6.155,500 € , 5.335.000 € 4.953,800 €
14.646,500 €
21.840,000 €
2.968,130 € 2.032,168 € 1.044,770 € 1.512,262 €
8.068,620 €
10.689,691 €
Key financial indicators for the investment opportunities
Total investment Net sales EBITDA
SUMMARY OF THE FINANCIAL INDICATORS
SUMMARY OF THE FINANCIAL INDICATORS
Sawmill Solid wood panel
plant Gluelam Furniture Softboard
Integrated Sawmill-Furniture
Net present value 10 years in € -8.048,434 € 785,216 € -2.526,546 € 2.417,171 € 6.442,673 € -7.701.875 €
IRR 10Y in % -3,09 9,72 0,15 17,71 10,84 3,66
Net present value 15 years in € -4.936,674 € 4.039,998 € -932,338 € 4.701,276 € 24.489,413 € 2.427.547 €
IRR 15Y in % 3,33 14,08 6,01 21,06 15,33 8,94
Payback Period in years 11,56 6,67 9,52 4,51 6,69 8,73
THREE MAIN CONSIDERATIONS FOR THE FURTHER DEVELOPMENT OF THE FOREST SECTOR
› Correction of the Concession system› Enforcement of contract obligations (e.g. concession payments, infrastructure
obligations …)
› Stop concession in terms of continuous violations or in state of bankruptcy
› Reconsider (individual) additional subsidies ( e.g. VAT exemptions, Payment deferrals, administrative service payment exemptions … )
› Explore opportunities of international tenders for vacant concessions
› Empower the Forest Administration to professional management› Ensure funding for sustainable forest operations by solving „income
problems“ and corporate finance possibilities
› Explore the opportunity of a transformation into a more independent legal entity (public enterprise? Private legal form? … )
› Implementation of a functioning Monitoring and Control System
50
OPPORTUNITIES FOR INVESTORS
› Political will for change visible
› Window of opportunity by idle concessions
› Cooperation with existing smaller and larger market participants
› Vertically integrated production as alternative to pure pellets/thermal use
ÖBF CONSULTING/ WINFRIED SUESS 51
