Ann: First outdoor build using Hadrian X robot, page-230

Hi S_O_A and others, hopefully this post if of value. 

General Comments

I wanted to simplify as much as possible so people who don’t have a financial background may find a little easier to follow.  So I have added a couple of features to the model.

On Left hand side I have include the relevant line (row number) so that easier for people to follow when comments are made about particular cells.

Secondly, I have attempted to illustrate how calculations have been assessed, so readers can follow.

 

Use of the Model  

Assuming the company is reading to start building homes (ie. more specifically “walls”) I have previously posted that it is too difficult prepare a model of profitability that will closely resemble reality.  Simply there are too many unknown variables.

To that end it could be argued that throwing a dart at a dartboard (which a bunch of numbers) has the same chance of getting the right number as spending hours on preparing a profit model.

So I believe the best way to prepare and use modelling in a forum like this one is to continue discussion and debate with a view to assessing, by consensus, what sort of numbers could be achieved if things go according to plan.

  
I make comments in relation line item to encourage debate / items for consideration.

So here goes:

 

Line 1: Current Operational Costs

I think its fair to assume that if the company is spending around $6m per quarter, this will continue for the foreseeable future. If Hadrian X is successful, R&D will continue, refinements made etc.

 

Lines 3 – 10: Working Days

Further to a previous post, I have tried to assess the number of working days per annum a machine can work based on an Oz working environment.  Line 8 & 9 were purely gutfeel and so readers may have alternative views.     

The numbers obviously don’t allow for jurisdictions were more work days are available (nor night works).  Obviously the more work days, the greater the profitability.

 

Line 12 – Days per House

This seems to be the accepted time by readers. I recall vaguely the original plan was for 3 days.  Obviously, the longer the days require to build the lower the profitability.

 

Line 17:  Projected Income

This was based on using S_O_A’s current price per brick multiplied by  DYOReasearch’s (and SOA’s) assessment of the typical number of bricks in a house.

DYO Research suggested a higher income and I argue that the service provided by FBR could result in a  premium charge.

So assuming the qty of bricks is correct, one could argue the projected income per machine per house could be higher.

 

Lines 17 – 44 : Profit ContributionPer Machine

This section is essentially about modelling how much profit is generated by each machine by only addressing the income and expenses directly related to the operation of each machine. 

Line 22 attempts to assess the loss of value of the Hadrian X (depreciation) over an estimated life of 5 years. In other words if the machine cost $500k and at the end of 5 years can no longer be used, the model apportions this cost over the expected life of the machine (ie. $100k per annum).

The model assumes the cost of a machine is $500k and does not take into account savings that can be achieved from multiple builds (ie economies of scale), design improvements etc. So one could argue the depreciation cost may actually be less (ie. lower cost and longer life).

Lines 24 to 28 attempts to assess the other vehicle costs as initiated by S_O_A.

 

Lines 31-34: Operator Costs

The model needs to incorporate a cost for operator of the machine. S_O_A and I have debvated whether one or two field staff are required. S_O_A suggested 1 full time operator and a 2^nd part time operator who comes to site for a short period of time before going onto the new site.

I wasn’t sure whether line 38 is the 2^nd person S_O_A had in mind and costed this out, so I have left that in place.

I firmly believe the company will not allow a single operator to remain on site. Besides obvious OHS reasons to have 2 persons on site, I believe it would be best practice to have 2 people on site at all times to address site issues that will arise during the build.

I have added in a standard on cost % to account for the various costs associated with employing staff (eg. workers comp, payroll tax super contributions etc).

 

Lines 36-38: Autocad / EngineerSupport

I can’t provide comment in relation to these costs so have left them in and I’m sure S_O_A would contribute more comments.

Line 40: Other Direct Costs

I pulled this one out of my backside. I wanted to put something into the model to account for anything else that may have been left out as a direct costs on every home built. Readers may suggest some logical items that have been left out.

 

Lines 46 – 49: Debt FinancingSummary  

In this section I have wanted to illustrate (very simply) the cost of finance of a single machine. Finance 101 recommends one match the term of a “loan” with the life of an asset (hence I have used the 5 years).

The interest rate of 8% is much higher than one can obtain currently in the market (for a simple asset purchase by a well established business) , however this may be the appropriate rate that FBR may need to pay given perceived risk by the financier (or relevant debt instrument).

Also if the cost of the machine comes down (as discussed above), it simply means the cost of finance will come down and the company can afford to borrow more.

The numbers disclose that the repayments total $121k per annum. The interest is not technically $21k per annum. Like any loan more interest is paid when the outstanding loan balance is higher and gradually drops as the loan balance drops. However, I have kept it very simple just to illustrate the concepts to be incorporated.

 

Lines 52 – 65: Assessment of CorporateProfits

This section attempts to assess corporate profits over a 6 year period. I have followed S_O_A’s approach of increasing the number of machines held (ie. acquired) each year for the 6 years, however I’d have serious concerns about the company’s ability to manage growth (assuming the profits per machine are as set out in the model).

I think the numbers I have provided are on the upperside of what they could manage – (but hey, what a problem to have if demand is as much as modelled).

I also thought it important to factor in some type of methodology to account for greater infrastructure costs as the company grows so settled for a 5% increase in infrastructure costs for every additional 10 machines acquired and operated.

Finally, I wanted to demonstrate the finance cost (ie. the interest) if the company started debt financing from the time it could afford to do so (ie. in the year ending 30/06/22.

Line 65 is therefore the magical figure we are trying to assess.

 

Final Comments Re Debt Financing(Lines 46 – 49, 65 & 67

I wanted to show in the model that if everyone goes as laid out, the company would be able to generate more than enough profits (and by natural extension cash flow) to meet the de3bt repayment obligations.

 

In fact, the numbers would suggest that the company could finance substantially more asset purchase than the numbers set out in line 54.   However, I have expressed concern as to how a company could manage such rapid growth (assuming the demand is in place). So whilst the company could “technically” afford to buy more assets, managing sudden/rapid growth may be an inhibitor. 

Again if the numbers are correct, isn’t it a great problem to have (ie. managing growth).

Thanks again to S_O_A  and DYOresearch for kicking this off.

cheers