TanksRus-Final-Submission-ENV9600

I

2015

Proposed by: Tina Boyce

TanksRus Recommended

Strategic Direction

5/15/2015

TanksRus Manufacturing Inc.

Proposed to: Mitch Harding

II

Executive Summary

The management team of TanksRus (TRU) wants to identify strategic initiatives to

address stagnant sales. The goal is to increase sales and profitability by diversifying

product lines and improving operations. The management has set a target of after

tax net income of $800,000 in 2017 and increases of $100,000 each year in the

following two years.

TRU's minimum required return of capital is 10%. Financing of $1.63 million is

available through cash in hand, dividend suspension and additional equity injections.

TRU has a total of 25,000 square feet of production space available.

The various alternatives analyzed in pursuit of these targets are:

Acquisition of Get Tanked (GT)

Metal recycling Joint Venture

Custom Fabrication Proposal

Hopper Bottom Cones Production

New Sales Office in Edmonton, Alberta

New site purchase in Balgonie, Saskatchewan

It is recommended that TRU participates in the custom fabrication proposal,

purchase a new site in Balgonie and open a new sales office in Edmonton to realize

operational savings as well as grow sales.

The custom fabrication proposal offers a positive NPV of $733K, with incremental net

income of $229K in 2017, $136K in 2018 and $63K in 2019. The new site purchase

provides a NPV of $1,260K and offers an incremental net income of $234K in 2017,

$265K in 2018 and $271K in 2019. The sales office in Alberta provides an

incremental net incomes of $985K in 2017, $906K in 2018 and $1,080K in 2019.

i

III

With the recommended course of action, TRU will achieve a net income of $1,318K

in 2017, $1,528K in 2018 and $1,381K in 2019; achieving the targets set by the

management.

The metal recycling initiative offers a positive NPV of $177.2K, with incremental net

income of $48K in 2017, $44K in 2018 and $47K in 2019. However due to financial

constraint, it is recommended that TRU to differ this alternative until 2016.

Harding will sign the lease for the sales office in May 2015 for $2,500. Wall will

communicate the acquisition of the sales office to the staff and hire sales staff for this

office costing $2,000 in June 2015. Harding will communicate the move to Balgonie

in June 2015 to the staff. Toth will design mileage compensation for employees in

October 2015. Harding will negotiate the price and purchase the property in Balgonie

in June 2015 for $319,300. Toth will start Balgonie building renovations in June 2015

for $450,000 and design different shift schedules in December 2015. Harding will

prepare a response for the salt silos proposal in July 2015. Raj will hire welders in

December 2015. Toth will acquire the equipment and setup production line in

January 2016 costing $323,000.

ii

IV

Table of Contents Introduction .............................................................................................................. 1

Current Situation Analysis ...................................................................................... 2

Mission .................................................................................................................. 2

Value Proposition ................................................................................................. 3

Strategic Goals and Targets ................................................................................ 5

Constraints ............................................................................................................ 5

Key Stakeholder Preferences .............................................................................. 6

Internal Environment ............................................................................................ 7

Current Financial Analysis .................................................................................. 8

Product Analysis ................................................................................................ 20

Geographical Market Analysis........................................................................... 21

Financing Availability ......................................................................................... 21

External Environment Analysis ............................................................................ 22

Industry Environment ......................................................................................... 22

P.E.S.T.E .......................................................................................................... 22

Key Industry Drivers ......................................................................................... 25

Products ........................................................................................................... 26

Industry Key Success Factors........................................................................... 27

Industry Key Risk Factors ................................................................................. 27

Industry Structure Analysis – Value Chain ...................................................... 28

Issues Analysis ...................................................................................................... 32

Strategic Issues .................................................................................................. 32

Operational Issues .............................................................................................. 32

Alternatives Analysis ............................................................................................. 34

Alternative 1: Acquisition of Get Tanked .......................................................... 35

Alternative 2: Downstream Proposal- Metal recycling joint venture .............. 38

Alternative 3: Custom Fabrication Proposal .................................................... 41

Alternative 4 – Hopper Bottom Cones (HBC) ................................................... 45

Alternative 5: Opening Sales Office in Edmonton, Alberta ............................. 51

Alternative 6 – Potential New Site Purchase .................................................... 54

Alternative 7 – Outsourcing Cradles Production ............................................. 57

Recommendation ................................................................................................... 58

Implementation Plan .............................................................................................. 61

Revised Mission .................................................................................................. 61

Strategic Implementation ................................................................................... 61

Change Management .......................................................................................... 64

iii

V

Risk Management ............................................................................................... 65

Operational Implementation .............................................................................. 66

Raw Material Supply ......................................................................................... 66

Human Resources ............................................................................................ 66

Compensation ................................................................................................... 67

Legal Concerns ................................................................................................. 67

Ethical Issues .................................................................................................... 68

Production Efficiency ......................................................................................... 68

Information System ........................................................................................... 69

Financial Forecast .............................................................................................. 70

Performance Measurement ................................................................................ 70

Conclusion .............................................................................................................. 72

Appendices ............................................................................................................. 73

Appendix 1 – TRU Strategy Map .......................................................................... 73

Appendix 2 – SWOT Analysis ............................................................................... 74

Appendix 3 – Ratio Analysis ................................................................................. 75

Appendix 4 – Trend Analysis ................................................................................ 76

Appendix 5 – Contribution Margin Analysis .......................................................... 77

Appendix 6 - Sales Growth Analysis ..................................................................... 77

Appendix 7 – Get Tanked ..................................................................................... 78

Appendix 7 - Continued ........................................................................................ 79

Appendix 8 – Metal Recycling .............................................................................. 80

Appendix 8 Continued .......................................................................................... 81

Appendix 9 – Salt Silo Custom Fabrication ........................................................... 82

Appendix 9 Continued – Sensitivity Analysis ........................................................ 82

Appendix 10 – Hopper Bottom Cones .................................................................. 83

Appendix 10 Continued – Sensitivity Analysis ...................................................... 84

Appendix 11 – Sales Office .................................................................................. 85

Appendix 11 Continued – Sensitivity Analysis ...................................................... 86

Appendix 12 – New Site Purchase ....................................................................... 86

Appendix 12 Continued ........................................................................................ 87

Appendix 13 – Action Plan (Cost quoted in 000’s) ................................................ 88

Appendix 14 – TRU Proforma Balanced Sheet .................................................... 89

Appendix 15 – TRU Proforma Income Statement ................................................. 90

Appendix 16 – TRU Cash Flow Proforma ............................................................. 91

Appendix 17 – TRU Balanced Score Card ........................................................... 92

Bibliography ........................................................................................................... 93

iv

1

Introduction

With stagnant sales and increasing competition, the management in TanksRus

Manufacturing Inc. (TRU) wishes to identify strategic initiatives that will allow the firm

to pursue profitable growth by increasing sales and managing costs. The

management has set targets to grow net income to $800k in 2017, and increases of

$100k in the subsequent two years.

The purpose of this report is to propose a strategic direction and analyze

alternatives, resolve key operational issues, and meet the goals outlined by the

management within a given set of constraints. The scope includes a current

assessment of the organization, qualitative and quantitative analysis for each

strategic alternative, an examination of operational issues, and a recommended

course of action. To support the recommendation, the financial impact of the

recommendation and an implementation plan will be included.

2

Current Situation Analysis

Mission

“TRU supplies high quality standard and custom-sized steel storage tanks to both

wholesale and retail customers in oil and agriculture industries in Canada and the

northern United States.”

The mission statement is a strong one and it adequately describes the purpose of

the corporation including product focus, the target market, core competencies and

geography of the company’s operations. The following elements are identified in the

mission statement:

Product Focus - Above ground, steel storage tanks to store flammable liquids

Target Market – Canada and Northern United States

Targeted Customer – Oil fields, farm supply distributors

However, this can potentially be improved by introducing some core values of the

company such as being adaptive to change, being customer and solution centric into

its daily practices and environmentally responsible.

3

Value Proposition

TRU is a provider of high quality tank storage solutions for both oil and agriculture

producers and pursues a strategy based on a customer intimacy value proposition, as

seen in TRU’s commitment to providing flexible solutions to its customers through

custom designed tanks. This value proposition has allowed TRU to survive in a

marketplace with limited product differentiation and intense competition1. In order for

TRU to remain profitable in the long run, its management team will have to focus on

the value of long term client relationships. TRU will have to utilize its customer

knowledge to better target and tailor solutions for its clients in order to better capture

a potential client’s lifetime value. The management team must also foster a corporate

culture of empowerment such that its client facing employees are given the flexibility

to resolve client concerns in a timely manner. TRU must also align its hiring and

training practices to emphasize the need for creative problem solving. Providing its

staff with tools to access current and relevant information in order to make critical

decisions quickly2.

1 Michael Treacy and Fred Wiersema, "Customer Intimacy and Other Value Disciplines," Harvard Business

Review, January/February 1993, 84-85. Accessed May 4, 2015, http://www.cma-

cpp.com/_layouts/wsDownloadArticle.aspx?id=46&language=En&downloadname=Customer%20Intimacy%20

and%20Other%20Value%20Disciplines-93107.pdf 2 Treacy and Wiersema, "Customer Intimacy and Other Value Disciplines," 89.

4

Strategy Mapping

See Appendix 1

The overriding objective of TRU is to explore growth and increase its net income.

Financially, TRU seeks to improve its net income through revenue growth and cost

optimization by streamlining operations to maximize proficiency in planning,

production and distribution of tanks.

From a customer strategy perspective, in order to meet its financial targets in an

industry with limited product differentiation, TRU must remain flexible and

continuously adapt to meet clients’ needs and improve client services. Currently,

TRU does not have a team dedicated to address client service issues. By introducing

more services to its clients, TRU would be able to add more value.

From a learning and growth perspective, TRU should focus on human capital to

retain the most skilled workers and reduce turnover.

5

Strategic Goals and Targets

The following describes the strategic goals and targets set by the management

team:

Achieve after tax net income of $800K (incremental 245.4K) in 2017 and

increases of $100K each year in 2018 and 2019

Explore growth and profitability through

Product Diversification

Growth in sales

Growth in Alberta

Cost cutting in Saskatchewan

Constraints

The following describes the constraints that are faced by TRU

• Minimum return on capital of 10%

• Capacity constraints for large tank facility at 10,000 square feet and small

tank facility at 15,000 square feet

• To qualify for deferred repayment of loan principals for the acquisition of Get

Tanked, TRU’s Debt to equity ratio must not exceed 1.75 in 2016 and 2017,

and be reduced to 1.0 by Dec 31st, 2018

6

Key Stakeholder Preferences

Table 1 - Key Stakeholder Preferences

Key Stakeholder

Preferences

Mitch Harding • Continue operations in Canada • Diversify product line • Grow sales in Alberta • Cut costs in Saskatchewan • Purchase of new facilities in Saskatchewan will demonstrate

the firm’s commitment to the its roots • Initiatives that safeguard the environment

Greg Toth • Growth in Alberta through acquisition of Get Tanked (GT) • Questions the wisdom of purchasing a new plant in

Saskatchewan due to possible backlash from staff and brand image issues

Cassandra Wall

• Growth in Alberta, but not via GT acquisition as current sales staff are concerned about losing commissions to GT counterparts

• Pursue Hopper Bottom Cones rather than salt silos contract which appears to be finite

Raj Patel • Utilize foreign workforce to decrease wage costs • Purchase plant in Saskatchewan, realize savings by

amalgamating all current operations under one roof • Diversify through manufacturing of salt silos rather than metal

recycling as the firm has no previous experience in operating recycling facilities

Sasha Cossaks • Diversification through metal recycling • Diversification through hopper bottom cones, which would

benefit current customers in the agricultural sector

Alex Jiroux • Increase production capacity • Silo production as there is previous experience in the

manufacturing of large tanks

7

Internal Environment

See Appendix 2 for detailed internal environmental scan.

TRU’s primary strengths lie within its ability to quickly adapt to customer needs and

produce products that are consistent in quality, surpassing both regulatory

requirements and customer expectation. All of TRU’s products are also

environmentally friendly, which aligns with the public sentiment on environment

preservation. TRU’s well-established distribution network has been utilized effectively

in improving customer relationships by providing transportation support for clients.

In an industry where a consistent supply to good quality raw material and human

capital is critical in the success of players, TRU’s high turnover for its skilled welders

and the dependence on a single steel supplier is a major concern. With operational

inefficiencies such as a manual costing system, the need for a central ordering

systems, inconsistent hiring practices and compensation schemes, TRU’s flexibility to

remain competitive in its pricing strategy may be negatively impacted.

8

Current Financial Analysis

Ratio Analysis

Liquidity, activity, coverage and profitability ratios for TRU are listed in Appendix 3.

Industry leaders such as Vicwest (Vic)3, Armtec Infrastructure (ARF)4, PFB Corp

(PFB)5, International Barrier Technology (IBH)6 and similar sized competitors such

as Tank Rentals Inc. (TR), AB Co. (AB), PrairieTank (PT), Tanks of Steel (TS) are

used as benchmarks. These financial ratios will provide an understanding of TRU’s

performance in relative terms. This will allow the management team to focus on

areas of concern and take advantage of any previously unidentified opportunities.

Liquidity

TRU’s current ratio improved from 1.36 in 2011 to 1.84 in 2014, indicating its improved

capacity to meet short term financial obligations and remain viable. A look at the year-

to-year analysis shows that TRU is trending similarly as industry leaders and has

similar performance as other industry competitors. The improvement is largely due to

increase in cash holdings and net accounts receivable. Net accounts receivable

increases is concerning as this indicates that TRU’s ability to collect on its sales has

declined. If this trend continues, TRU’s ability to finance its operations and future

projects will be negatively impacted.

3 "Vicwest.," TD Waterhouse Trading Floor, accessed March 15, 2015, Bloomberg. 4 "Armtec Infrastructure.," TD Waterhouse Trading Floor, accessed March 15, 2015, Bloomberg. 5 “PFB Corp.,” TD Waterhouse Trading Floor, accessed March 15, 2015, Bloomberg. 6 “International Barrier Technology.,” TD Waterhouse Trading Floor, accessed March 15, 2015, Bloomberg.

9

Figure 1- Current Ratio

Figure 2 - Current Ratio Trend

0.00

0.50

1.00

1.50

2.00

2.50

Tank RentalsInc.

AB Co. PrairieTank Tanks ofSteel

TanksRus

Current Ratio 2014

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

2011 2012 2013 2014

Current Ratio Trend

VIC

ARF

PFB

IBH

TRU

10

Activity

TRU’s accounts receivable turnover has continued to decline, moving from 12.87 in

2012 to 8.49 in 2014, suggesting that TRU is experiencing collection issues. This is

possibly due to the concentrated wholesale revenue in the oil industry which is

notorious for slow payment. If this trend continues, TRU will experience continued

cash strains, limiting its ability to finance its operations and special projects. Trend

analysis against industry leaders shows a general decline, suggesting possible

changes of customer expectation for payment terms. The poses a greater for smaller

firms with less financing options.

Figure 3 - AR Turnover

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

Tank RentalsInc.


TanksRus

AR Turnover 2014

11

Figure 4 - AR Turnover Trend

TRU’s inventory turnover has steadily improved from 3.88 in 2012 to 8.93 in 2014,

largely due to improved sales as inventory levels have declined in the same period.

While this suggests that TRU has improved efficiency, it still lags behind players of

comparable size. TRU’s competitiveness in the long run may decline as cash continue

to be tied up in inventory and additional storage and maintenance expenses. However,

comparison against industry leaders showed that TRU is above average, signaling

that inventory must be managed carefully to prevent losses of business due to

availability issues.

0.00

5.00

10.00

15.00

20.00

25.00

30.00

2011 2012 2013 2014

AR Turnover Trend

VIC

ARF

PFB

IBH

TRU

12

Figure 5 - Inventory Turnover

Figure 6 - Inventory Turnover Trend

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

Tank RentalsInc.


TanksRus

Inventory Turnover 2014

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

2011 2012 2013 2014

Inventory Turnover Trend

VIC

ARF

PFB

IBH

TRU

13

Coverage

TRU’s interest coverage ratio has declined slightly from 12.66 in 2011 to 11.15 in 2014,

largely due to the decrease in the profitability of the firm. If the decline continues, TRU

will have decreased capacity to cover its financing costs. This will have to be closely

monitored and will play a role in determining whether future debt will be required to

meet capital needs. While this puts TRU in the middle of the pack amongst its

competitors, it surpasses industry leaders by a large margin. This suggests that

industry leaders are utilizing more debt financing, which may be an opportunity for

TRU in order to fund future growth.

Figure 7 - Times Interests Earned

0.00

5.00

10.00

15.00

20.00

25.00

Tank RentalsInc.


TanksRus

Times Interest Earned 2014

14

Figure 8 - Times Interests Earned Trend

TRU’s Debt to Equity ratio has improved from 1.64 in 2011 to 1.34 in 2014, likely due

to the significant increase in retained earnings in the same period. This is indicative of

a lowering in the likelihood of default risks, making TRU more attractive to investors

and lenders. TRU’s D/E ratio falls mid-range amongst its competitors and is

significantly lower than industry leaders. It is critical for TRU to carefully manage its

D/E ratio to take full advantage of cheaper debt financing options while limiting

unnecessary financial exposure.

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

20.00

2011 2012 2013 2014

Times Interest Earned Trend

VIC

ARF

PFB

IBH

TRU

15

Figure 9 - Debt to Equity Ratio

Figure 10 - Debt to Equity Trend

0

0.5

1

1.5

2

2.5

Tank RentalsInc.

AB Co. PrairieTank Tanks of Steel TanksRus

Debt to Equity Ratio 2014

-25.00

-20.00

-15.00

-10.00

-5.00

0.00

5.00

10.00

15.00

20.00

25.00

30.00

2011 2012 2013 2014

Debt to Equity Ratio Trend

VIC

ARF

PFB

IBH

TRU

16

Profitability

Once adjusted for the production overhead variance, gross margin showed declining

trend - moving from 25.0% in 2011 to 21.9% in 2014. This decline is due to increases

in the COGS contributed by rising raw material cost and scarce labor, which will

continue to be a risk that TRU must manage. TRU’s gross margin performance is

comparable to its competitors and industry leaders, suggesting the risks TRU faces

are likely industry wide. It also suggests that TRU has been successful in

differentiating its products to allow it to charge higher prices in order to achieve similar

gross margins as larger players with access to robotics. TRU has much to gain from

improving operational efficiencies.

Figure 11 - Gross Margin

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

TankRentals Inc.


TanksRus TanksRusAdjusted

Gross Margin 2014

17

Figure 12 - Gross Margin Trend

TRU’s net margins are also on the decline, moving from 7.94% in 2011 to 6.52% in

2014. Even though TRU’s gross margins led the pack, its net margins are lagging

behind industry competitors, suggesting that TRU has not been able to manage its

general and administrative expenses as effectively as their competition. If this persists,

the profitability of TRU will continue to decline which will further increase the

consolidation and takeover risks that TRU faces. Net income has been identified by

TRU’s management team as a major area for improvement.

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

2011 2012 2013 2014

Gross Margin Trend

VIC

ARF

PFB

IBH

TRU

TRU-Adjusted

18

Figure 13 - Net Margin

Figure 14 - Net Margin Trends

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

10.00%

Tank RentalsInc.


TanksRus

Net Margin 2014

-30.00%

-20.00%

-10.00%

0.00%

10.00%

20.00%

30.00%

2011 2012 2013 2014

Net Margin Trend

VIC

ARF

PFB

IBH

TRU

19

Trends

See Appendix 4 for year to year trend analysis

Income Statement

Recovering from the overall industry decline in Alberta in 2012, TRU has seen its

revenue grow by 35% in 2013 and 16% in 2014 due to strong sales in 25,000L and

50,000L tanks. This growth is matched by similar rise in cost of goods sold, 37% in

2013 and 14% in 2014, which has left the gross margin largely unchanged at

approximately 21%-22%. After adjusting for the overhead allocation issue, COGS has

increased from 2011 to 2014, causing a deterioration of the gross margin from 25% in

2011 to 21.9% in 2014. From this it is evident that without accurate cost allocation,

profitability analysis can be misleading and cause the firm to make inappropriate

pricing and planning decisions.

Net margin has declined from 8% in 2011 to 6.5% in 2014. While general and

administrative expenses have decreased, administrative wages and benefits have

increased rapidly by 35% from 2011 to 2014. Wage and benefit costs continuing to

outpace sales growth, possibly due to low morale caused by extensive travelling as

there is no local salesforce in Alberta. Growing interest expenses in the face of

decreasing long term debt suggests TRU is not meeting its short term obligations in a

timely manner, possibly due to a lack of automated cost management.

20

Statement of Financial Positions

Total assets have increased by $541,000 or 20% in the last three years, fuelled by

growth in current assets, which have increased largely due to rise in the company’s

cash by 140% and significant increases in receivables by 72% during the 2011 to 2014

period.

Non-current assets has declined largely due to diminishing leasehold improvements,

which suggests that the current facility is aging and TRU may be at risk of having to

do significant upgrades in the future. This could also indicate that TRU is not utilizing

profits to reinvest in the company, which may negatively impact the long term growth

of the firm. Total liability has remained consistent over the last three years. Long term

liability has declined due to TRU’s consistent repayment of debt. However, the

increase in current liabilities is a concern that will likely strain the cash flow.

Product Analysis

See Appendix 5 for detailed calculation of contribution margins.

When considering labor hour constraints the 25,000L and 50,000L tanks are the most

profitable at $87.56 and $96.51 per labor hour. The 500 and 1,000 gallon tanks are

most profitable at $116.01 and $285.25 per square feet when considering production

floor space constraints. In addition, 1,000 gallon, 25,000 L and 50,000 L models have

shown the strongest sales growth from 2011 to 2014 at 20%, 57% and 59%

respectively. Sales growth data combined with contribution margin analysis provides

TRU with an understanding of the profitability and growth potential for its current

product offerings and provides a basis for improving profitability through product mix

changes.

21

Geographical Market Analysis

See Appendix 6 for detailed calculation of sales growth.

With location cited as a key determinant in the purchasing processes by buyers,

strategically locating TRU’s operations will be critical in determining the future growth

and success of the firm. TRU’s geographical showed a decline in Alberta and

Saskatchewan by 10% and 4% respectively between the years of 2011 and 2014,

while overseas and other provinces showed significant growth at 75% increase during

the same period. Without product mix information for each geographical area, it is

difficult to determine the profitability of particular regions. However, this information

will prove valuable in determining markets of growth and focus on future expansions.

Financing Availability

TRU has a total of $1,640K available to fund any project, with an additional $4.5 million

in bank loans available should TRU wish to acquire Get Tanked.

Table 2 - Financing Available

Financing Amount

Cash on Hand $667K

Additional Equity From Harding $500K

Additional Equity From Toth $300K

Deferred Dividend Payment $166K

Total available for all projects: $1.64M

Specific to Acquisition of Get Tanked $4.5M

22

External Environment Analysis

Industry Environment

Political

With a growing focus on environmental preservation from the public, the Canadian

government has faced increasing pressure to maintain a balance between resource

development and environmental protection 7 . With a lack of consensus between

political parties and the upcoming 2015 federal and provincial elections, there is a risk

of the government shifting priorities away from businesses8 . This can negatively

impact the opportunities surrounding the oil industry such as the Northern Gateway

pipeline and players in the supply chain such as the metal tank manufacturers9.

With the metal tank industry being heavily regulated in production and design

standards, it has deterred entry as any potential product failures expose the

manufacturer to lawsuits and heavy financial repercussions10. With recent reforms to

offer business owners grants in order to help finance employee training, the

government hopes to alleviate some of the issues surrounding the skill shortages in

the current labor market11. TRU can utilize these incentives to help finance additional

training for its welders in an effort to address the turnover issues.

7 MarketLine. “MarketLine Country Profile: Country Analysis Report: Canada, In-depth PESTLE Insights –

Nov 2014,” 17, Accessed March 2, 2015.

http://advantage.marketline.com.libproxy.wlu.ca/Product?pid=ML00002-006 8 MarketLine, “Country Analysis Report: Canada, In-depth PESTLE Insights,” 17. 9 MarketLine, “Country Analysis Report: Canada, In-depth PESTLE Insights,” 17. 10 Maksim Soshkin, “IBISWorld Industry Report 33242CA: Metal Tank Manufacturing in Canada – January

2015,” 22, Accessed April 2, 2015. IBISWorld. 11 MarketLine, “Country Analysis Report: Canada, In-depth PESTLE Insights,” 25.

23

Economic

Three quarters of the Canadian exports are going to the US, reaching value of $358.7

billion in 2013. With commodities making up one third of that value, there is a high

degree of dependency on the US economy 12 , making Canadian businesses

increasingly vulnerable to economic swings. Metal tank manufacturers also face the

lack of skilled workers as Saskatchewan and Alberta continue to experience low

unemployment rates.

The world’s need for oil, largely influenced by emerging markets, will increase by 30%

before 2040. With North America’s gas and oil production climbing and interest

building for the utilization of pipelines to transport oil products to other markets, the

demand for storage tanks will likely remain high 13 .Canadian agricultural product

consumption is forecasted to grow at the rate of 2.8% between 2014 to 2019 to reach

$16.1 billion in value14 . With Canada accounting for 5.3% of the world’s wheat

production and 2.3% of the global course grain production, it is one of the world’s major

agriculture producers and has created high demand for storage solutions such as grain

silos, bins and hopper cones15. Growth in downstream markets will continue to drive

the demand for storage solutions, presenting TRU with product diversification and

growth opportunities.

12 MarketLine, “Country Analysis Report: Canada, In-depth PESTLE Insights,” 20. 13 Soshkin, “Metal Tank Manufacturing in Canada,” 15. 14 MarketLine. “MarketLine Industry Profile: Agricultural Products in Canada – Feb 2015,” 7, Accessed March

2, 2015. http://advantage.marketline.com.libproxy.wlu.ca/Product?pid=MLIP1549-0005 15 Soshkin, “Metal Tank Manufacturing in Canada,” 14.

24

Social

With the median age of Canadians reaching 41.5 in 2013, many skilled labors are

reaching retirement age and will compound the skilled labor shortage. With the

government’s favorable immigration policies becoming more controversial in the face

of declining employment conditions, public perception of foreign workers are becoming

increasingly unfavorable and may damage TRU’s image of being a locally committed

company should they bring on foreign workers16. The shortage of labour will likely

continue to be a major issue for TRU, which will limit its production capacity and

growth.

Technological

Canada’s R&D tax incentives are amongst the most generous in the world, giving

Canadian metal tank manufacturers long-term advantage over their international

competitors by providing financial support to improve productivity through

technological innovation17. However, a lack of enforcement on intellectual property

protection suggests any competitive advantage acquired through technological

innovation may be short-live18. The metal tank industry has seen continued adoption

of automation, just in time inventory management and computer-aided manufacturing

in an effort for more accurate planning, lower labor expenses and reduced inventory

holdings19.

16 MarketLine, “Country Analysis Report: Canada, In-depth PESTLE Insights,” 26. 17 MarketLine, “Country Analysis Report: Canada, In-depth PESTLE Insights,” 28. 18 MarketLine, “Country Analysis Report: Canada, In-depth PESTLE Insights,” 29. 19 Soshkin, “Metal Tank Manufacturing in Canada,” 27.

25

Environmental

Although Alberta has significant reserves paralleling Saudi Arabia, complications due

to extraction from tar sands can result in significant environmental impacts20. With

increasing public concern over possible environmental damages during oil extraction,

opportunities surrounding the oil industry may be at risk. Canadian government’s plans

to introduce new regulations to limit greenhouse gas emission from the automotive

sector will also put TRU at risk of stagnant or decreasing sales21.

Key Industry Drivers

External drivers such as the demand from crop production, value of non-residential

construction, world price of steel, and the strength of the Canadian dollar play critical

roles in determining the performance of Canadian’s metal tank manufacturing

industry 22 . Agricultural and non-residential construction sectors are the largest

consumers of metal tanks with the agribusiness accounting for 35.4% of the industry

revenue, the manufacturing market at 24.2%, exports at 22.2% and oil, gas and

petrochemical making up the rest 18.2%. Forecasted growth in these sectors will

provide TRU with an opportunity to explore new products and customer segments23.

With steel being the primary input material used by the industry, its price and

availability is critical in determining profitability24. Manufacturers will likely be forced to

take hits to their bottom line and absorb any increases in steel price in order to remain

competitive in their pricing schemes25. To meet customers’ scheduling expectations,

manufacturers must have reliable sources of steel sheet. With world steel prices

20 MarketLine, “Country Analysis Report: Canada, In-depth PESTLE Insights,” 35. 21 MarketLine, “Country Analysis Report: Canada, In-depth PESTLE Insights,” 35. 22 Soshkin, “Metal Tank Manufacturing in Canada,” 4-5. 23 Soshkin, “Metal Tank Manufacturing in Canada,” 14 24 Soshkin, “Metal Tank Manufacturing in Canada,” 5. 25 Soshkin, “Metal Tank Manufacturing in Canada,” 5.

26

forecasted to increase and the current reliance on a single supplier, TRU must

reevaluate its pricing strategy, explore operational efficiencies and additional supplier

relationships in order to remain competitive26. As an industry, there are significant

levels of trade, which makes a strong Canadian dollar unfavorable as exports become

relatively more expensive, thereby damaging the Canadian Metal Tank’s price

competitiveness27.

Products

The Canadian metal tank industry is made up of three major product segments, with

custom built tanks making up 55% of the industry revenues, standard tanks occupies

another 30%, and gas cylinders making up the last 15%28. Custom tanks are built to

the clients’ specifications and as such, economies of scale are hard to achieve. In

order to succeed in this segment, it is far more important to have flexible operations in

order to accommodate frequent design changes. On the other hand, standard tank

production requires economy of scale and a high level of operational efficiency to be

profitable. TRU’s operational structure and value proposition better aligns with the

custom tank market.

26 Soshkin, “Metal Tank Manufacturing in Canada,” 5. 27 “IBISWorld Business Environment Report: World Price of Steel – March 2015,” 1, Accessed April 28, 2015.

IBISWorld. 28 Soshkin, “Metal Tank Manufacturing in Canada,” 15.

27

Industry Key Success Factors

• Quality, location and scheduling is key in serving customers in the oil sector

• Access to a reliable steel supply, both new and recycled

• Staying current with new technologies

• Competitive pricing schemes

• Exceeding customer expectations in quality

• Ability to vary services to suit different needs29

• Provision of superior after sales service30

• Compliance with required product standards

• Having a highly trained workforce31

Industry Key Risk Factors

• Shortage of skilled welders

• Increasing cost of steel32

• Downstream markets can cause large swings in metal tank demand36

• Trend of consolidation and takeovers forcing existing players to continuously

seek improved operations to remain competitive.33

29 Soshkin, “Metal Tank Manufacturing in Canada,” 12. 30 Soshkin, “Metal Tank Manufacturing in Canada,” 19. 31 Soshkin, “Metal Tank Manufacturing in Canada,” 19. 32 Soshkin, “Metal Tank Manufacturing in Canada,” 19. 33 Soshkin, “Metal Tank Manufacturing in Canada,” 19.

28

Industry Structure Analysis – Value Chain

Value chain analysis allows firms to identify and analyze its primary and supporting

activities that add value to its customers, to focus efforts on cost cutting and

differentiation. Understanding the industry value chain can help TRU identify any

potential opportunities for improvement through its own position from investment

through distribution.

Figure 15 - Value Chain Analysis

• Large amount of capital required

• Assume reasonable riskInvestment

• Negotiate deal

• Acquire contractSales

• Operational process

• According to customer specDesigning

• Process of raw material: new, scrap metalRaw Material

• Welding, blasting, paintingProduction

• Delivering merchandise to customerDistribution

• Installation, training, issues resolution

• Accident remediationService

• Recycling scrap

• Feed back to resourcingScraps Disposal

29

Investment

TRU funds capital requirements through equity financing from owners, venture

capital investment and cash flows generated from operations. TRU has also secured

an additional loan for a specific takeover which could offer new products to

customers. This activity adds value to customers by providing the resources to

continuously improve the selection and quality of products. However, a combination

of forecasted stagnant sales and increasing costs will put this activity at risk.

Sales

TRU has a team of highly experienced sales staff based in Saskatchewan that travel

regularly to support potential customers in both Alberta and Saskatchewan. This has

generated value to TRU’s customers by providing them with increased access to

information and personalized support in the purchasing process. With the current

sales team experiencing morale issues due to extensive travelling, the quality of this

activity may be negatively impacted.

Design

TRU has a set of defined product designed for two specific industries: oil and

agriculture. The two types of designs differ in size to accommodate the needs of the

two industries. The smaller tanks (99-1,000 gallon) are catered to agriculture needs

while the larger ones (25,000 – 50,000 gallon) are specific for oil refineries storage

needs. TRU has been able to design new types of tanks flexibly on an ad hoc basis

to meet customers’ special needs in a timely manner to shorten the delivery cycle,

adding value to the customers.

30

Raw Material

TRU uses sheet steel as raw material to produce tanks, which are currently acquired

from a single Canadian supplier. A reliable source of high quality steel will enable

TRU to provide its customers with reliable tanks in a timely manner. While the

current supplier has provided excellent products on schedule in the past, recent

delays in shipment may signal the need for TRU to explore additional supplier

relationships to ensure mitigation of delivery issues.

Production

TRU’s core competency is manufacturing of the steel tanks. TRU takes pride in

being a high-quality, innovative manufacturer of environmentally friendly tanks as

well as Transport Canada-approved tanks. Manufacturing strength and flexibility

have been the two major value additions to the customers. However TRU is now

facing constraints on both skilled-welders as well as surging raw material cost due to

the projected costs of steel and labour and increasing rework costs associated with

welding inefficiencies.

Distribution

Most of TRU’s customers arrange their own shipments and distribution, but TRU

does offer shipping solutions for its customers. This adds value to the customers

who are not able to arrange their own shipping and they appreciate the option.

Clients also do not need to spend resources on planning the shipping and can rely

on TRU’s expertise to ship tanks correctly.

31

Service

TRU is not currently involved in the servicing any of the tanks it sells. The inclusion

of a service division will help add value to customers by providing support and

training during installation and inspection and maintenance services to prevent

leakages. These initiatives align with TRU’s value proposition of customer intimacy

and allow TRU to gather customer information valuable in tailoring promotional

activities.

Scrap Disposal

TRU does not currently have the knowledge or capacity to participate in scrap

recycling and simply sells its scraps to other businesses. As a result, TRU may be

forgoing potential profits in vertical integration. Recycling also aligns with public

opinion regarding environmental preservation. Exploring this option can also

potentially enable TRU to hedge against the risk of rising metal price through forging

relationships with players in the metal processing industry, delivering value to

customer through a more stable supply chain.

32

Issues Analysis

Strategic Issues

Stagnant sales is projected due to lack of new customers or product line

Increasing operational costs caused by inefficient processes and lack of control

Intensified competition with few differentiating factors

Rising cost of raw material

Operational Issues

Human Resources

High turnover of employees

Inconsistent performance of welders

Scarcity of the available skilled welders

Lack of standard hiring practices

Compensation Schemes

Lack of performance based production incentives

Current bonus system does not promote consistent behavior in different

departments

Welder wages are currently below unionized companies, putting TRU at risk for

unionization

33

Technology

Lack of an effective costing system to track inventory

Payroll system needs improvement

Website does not support include order tracking or sales data analysis

No tracking on effectiveness of marketing and promotional activities

Operational Inefficiencies and Risks

No capability to service customers

Large costs associated with duplicate orders, travelling expenses and inventory

mismanagement due to having multiple sites

Rising number of welding deficiencies increases cost

Reliance on a single Canadian supplier for sheet steel introduces risks to supply

chain

Ethical and Legal Concerns

Possible threat of negative media coverage and lawsuit regarding tank leakage

Deviation from standard practices in ordering steel from an unapproved supplier

34

Alternatives Analysis

Incremental approach used in quantitative analysis with financial data presented in

thousands of dollars.

Strategic Alternatives

Acquisition of Get Tanked

New Metal Recycling Joint Venture

Custom Fabrication Contract for Salt Silos

Hopper Bottom Cones Production

Major Alternatives

New Sales Office in Edmonton, Alberta

New facilities in Balgonie, Saskatchewan

Minor Alternative

Outsourcing Transport Cradles

35

Alternative 1: Acquisition of Get Tanked

TRU has recently received an offer from the owners of a steel tank manufacturing

company “Get Tanked”, in Alberta to acquire their business for $5MM. The acquisition

will include assets and a current wholesale contract with an Alberta farm cooperative

to supply 135 Gallon and 1,000 Gallon single-walled tanks.

PROS:

• Aligns with TRU’s mission of supplying customers in Canada with tank solutions

• Aligns with TRU’s goals of growing sales in Alberta and product diversification

• Will provide 18,750 sq ft of production space and 31,250 sq ft of excess capacity

• Supported by Toth

• TRU can potentially leverage GT’s advanced robotics for welding

• Lower turnover due to unionization

• Guaranteed income stream

CONS:

• Should TRU be forced to match unionized wages, net loss would result (Table 3)

• Concerns over commission may cause loss of experienced sales staff, potentially

damaging existing client relationships and cause internal tension

• Wholesale customers usually take longer to pay, which may negatively impact

TRU’s cash flow

• Additional site may compound operational issues such as duplication of raw

material orders, inaccurate costing and travelling costs

• Fixed contract pricing will damage profitability in the face of increasing costs

• Concentration in Alberta exposes TRU to additional market risks associated with

the region

36

Quantitative Summary (See Appendix 7 for Detailed Calculations):

• Valuation: Discounted Cash Flow analysis puts the value of GT at $5.7 million

• Meets 10% ROI requirement

• Contribution to N.I. 984.6K in 2017, 906.2K in 2018, 1080.5K in 2019

• Initial investment: 5,000K

• TRU will acquire 18,750 sq ft of production capacity and 31,250 sq ft unused

capacity

• Even though incremental revenue is projected to remain relatively stable, there is

a declining trend for net income

Table 3 - GT Analysis

Base Case Sensitivity Analysis

NPV (10%, 10 Years) 997.0 (565.1)

NI 2017 984.6 364.3

NI 2018 906.2 810.7

NI 2019 1,080.5 717.9

Financing 5,000

Capacity 18,750 sq ft of production capacity and 31,250 sq ft unused capacity

D/E 2016 1.94

N/A

D/E 2017 1.19

D/E 2018 0.72

IRR 15%

Profitability Index (P.I.) 1.20

Payback (Years) 4.66

37

Figure 16 – Acquisition of GT

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38

Alternative 2: Downstream Proposal- Metal recycling joint venture

MSAB has approached TRU to pursue a joint venture in metal recycling which will be

set up in Saskatchewan and will accept a wide range of products. TRU will have to

provide 100% of the initial financing, half of which will be treated as a loan to MSAB at

an interest rate of 2%. TRU will also be responsible in assisting in sales.

PROS:

• Aligns with TRU's goals of product diversification

• Supported by Harding and Cossaks

• Product diversification will allow TRU to mitigate the fluctuation in the agriculture

and oil industries

• Hedges against rising steel cost

• New relationships with foundries will potentially help diversify suppliers

• Aligns with the social trend of environmental preservation

CONS:

• Does not align with TRU’s mission and core competency

• Patel is against this project as TRU does not have any previous experience

• May compound current operational issues such as high travelling expenses,

nonstandard hiring practices and poor payroll control

• A lack of expertise may force TRU to relinquish operational control

• Possible conflicts due to different cultures may compound turnover issue

39

Quantitative Analysis (See Appendix 8 for Detailed Calculations):


• Contribution to N.I. 86.5K in 2017, 80.4K in 2018 and 86.2K in 2019

• Initial investment: 218K

• 9,000 sq ft lease available

• Improving trends for both incremental revenue and net income

Table 4 - Recycling Analysis

Base case Sensitivity Analysis

NPV (10%, 10 years) 177.2 (27.5)

NI 2017 86.5 41.3

NI 2018 80.4 30.8

NI 2019 86.2 35.7

Financing 218

Capacity Lease available

IRR 28%

N/A P.I. 1.81

Payback 3.75

40

Figure 17 - Recycling Joint-Venture

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41

Alternative 3: Custom Fabrication Proposal

TRU has received an RFP to provide salt silos under a three year contract to Alberta,

Saskatchewan and Manitoba, which will create working relationships with the

provinces and help TRU secure future contracts with the public sector and large

companies.

PROS:


• Aligns with TRU’s goals of product diversification

• Supported by Harding, Patel and Jiroux

• Product diversification will help mitigate public concerns over environmental

preservation and market fluctuations in the oil & gas industry

• Presence in Manitoba will allow TRU to leverage its reputation in a new

geographical market to explore possible growth

• Guaranteed revenue stream for three years

42

CONS:

• Additional facility may further compound current operational inefficiencies

• A lack of experience may cause potential defects, damaging reputation

• Road salt has been shown to be a major source of pollution, with regulation under

review by Environment Canada, consequentially salt silos demand may decline34

• Finite contract, future revenue not guaranteed

• Fixed contract pricing will damage profitability in the face of increasing costs




• Initial investment: 398K

• 8,000 sq ft of lease available

• After the initial 3 years, improving trend for both incremental revenue and N.I.

34 Martin Mittelstaedt, “Road salt is poisoning water bodies, study finds,” The Globe and Mail, March 5, 2010.

Accessed May 13, 2015, http://www.theglobeandmail.com/technology/science/road-salt-is-poisoning-water-

bodies-study-finds/article4352353/.

43

Table 5 - Custom Fabrication Analysis

Baseline – 10 years Expected Bid (5,785K)

Highest Bid (6,075K)

Medium Bid (5,850K)

Lowest Bid (5,300K)

NPV (10%, 10 years) 733.2 802.1 748.6 617.9

NI 2017 229.1 246.0 232.9 200.7

NI 2018 136.3 149.0 139.2 115.0

NI 2019 63.6 72.5 65.6 48.8

Financing 398

Capacity 8000 sq ft, leasing option available

IRR 58% 62% 59% 52%

P.I. 2.84 3.02 2.88 2.55

Payback 1.72 1.66 1.71 1.84

Table 6 - Custom Fabrication Sensitivity Analysis

Sales Projection Y4-10 0% 25% 50% 75%

NPV (10%, 10 years) -6.2 178.7 363.5 548.3

NI 2017 229.1 229.1 229.1 229.1

NI 2018 136.3 136.3 136.3 136.3

NI 2019 63.6 63.6 63.6 63.6

Financing 398

Capacity 8000 sq ft, leasing option available

IRR N/A

41% 49% 54%

P.I. 1.45 1.91 2.38

Payback 1.72 1.72 1.72

44

Figure 18 - Salt Silos

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45

Alternative 4 – Hopper Bottom Cones (HBC)

TRU can leverage its current customer based in agriculture sector to take advantage

of market demands for HBC. By providing two types of HBC to farming co-operatives

in both wholesale and retail fashions, TRU can increase its stake in the agriculture

equipment business.

PROS:

• Aligns with TRU's mission of providing customers in Canada with high quality

tanks

• Aligns with TRU's goal of product diversification

• Supported by Wall and Cossaks

• Take advantage of existing contacts and brand recognition in the agricultural

storage tank businesses

• Takes advantage of expected growth in the agricultural industry

• Product diversification into the agricultural industry can mitigate risks associated

with over dependence on the oil and gas industry

46

CONS:

• With uncertainty regarding availability of production capacity, TRU may have to

give up one of the current product offerings, resulting in net loss (Table 8)

• Additional facility or production line can further compound current operational

inefficiencies

• Lack of production experience may lead to quality issues and damage TRU’s

reputation

• Concentration in agriculture industry may further expose TRU to market

fluctuations

Quantitative Analysis (See Appendix 10 for Detailed Calculations):

There are two possible scenarios:

The first scenario assumes that there is no need to forgo any existing production

capacity

• Proposed retail scenarios in Alberta and Saskatchewan both meet the 10% ROI

requirement and contributes positively to net income targets

• Initial Investment: 605K

• 8000 square foot can be secured

• Lower production costs in Saskatchewan will result in a greater profitability

47

The second scenario assumes that no additional space is available and TRU must

reallocate 8,000 square foot of existing facilities to HBC. The 99 gallon tank with the

lowest contribution margin per square foot ($38.9/square foot) was used to calculate

opportunity costs.

• Does not meet 10% ROI requirement or net income targets

• Initial Investment: 605K

• 8000 square feet of TRU’s current production capacity

Both incremental revenue and N.I. are forecasted to experience initial growths,

plateauing in 2019.

Table 7 - HBC No Opportunity Costs

AB Blended AB Retail SK Blended

SK Retail

NPV (10%, 10 Years) -540.8 524.9 -130.3 969.6

NI 2017 -116.2 95.9 -34.7 163.7

NI 2018 -83.6 125.8 -3.9 196.9

NI 2019 -63.8 132.9 13.7 205.5

Financing 605

Capacity 8,000 sq ft

IRR

N/A

26% N/A

41%

P.I. 1.87 2.62

Payback 3.15 2.25

48

Figure 19 - HBC No Opportunity Cost – AB

Figure 20 - HBC No Opportunity Cost - SK

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Table 8 - HBC Opportunity Cost

AB Blended AB Retail SK Blended SK Retail

NPV (10%, 10 Years) -1974.8 -909.2 -1546.3 -464.5

NI 2017 -349.6 -137.5 -268.1 -113.1

NI 2018 -317.0 -107.6 -237.3 -69.7

NI 2019 -297.2 -100.5 -219.7 -36.5

Financing 605

Capacity 8K sq ft

Figure 21 - HBC Opportunity Cost - AB

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Figure 22 - HBC Opportunity Cost – SK

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51

Alternative 5: Opening Sales Office in Edmonton, Alberta

The extensive travelling required of current sales staff in Alberta has damaged morale

and possibly their effectiveness, as seen in the plateauing sales in Alberta. In an effort

to restart the upward trend previously seen in Alberta, a proposal to open a new sales

office in Edmonton Alberta has been put forward.

PROS:


• Aligns with TRU’s goals of growing sales in Alberta

• Sales can be met with current facilities

• Supported by Harding, Toth, and Wall

• Significant reduction in travel costs will help TRU stay flexible in their pricing

schemes

• Improve sales staff’s morale by reducing travelling requirements

CONS:

• Concentration in Alberta exposes TRU to additional market risks associated with

the region

• Possible impact on client relationships due to loss of experienced sales staff

• Increases in sales may strain the existing work force and compound the current

issue with welding defects, damaging TRU’s reputation

• Limited available storage may force TRU to acquire new site, compounding

operational inefficiencies

• Increase in sales exacerbates issues associated with poor cost tracking

• Customers in the oil industry usually take longer to pay, negatively impacting TRU’s

cash flow

52




• Initial investment 55K

• Production can be accommodated on current production lines

• Improving trends in both incremental revenue and N.I.

Table 9 - Edmonton Sales Office

Base Case (‘000s) Sensitivity Analysis (‘000s)

PV of Cash Flow (10%, 10 Years)

504.7 404.4

NI 2017 59.6 44.6

NI 2018 80.0 80.0

NI 2019 88.1 88.1

Financing 55 55

Capacity Current Line can accommodate the production

53

Figure 23 - Edmonton Sales Office

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54

Alternative 6 – Potential New Site Purchase

There is an option to purchase a bigger plant in Balgonie – a small town in

Saskatchewan. This will result in convergence of all current operations into one place.

The owner has been trying to sell it for some time and is likely to accept a low offer.

This new site will provide 60K sq ft, and is a mere 30-minute drive from Regina.

PROS:

• Aligns with TRU’s goals of improving profitability through cost cutting

• Will provide 60,000 sq ft of production space and 10 acres of land for storage,

allowing for future growth

• Supported by Harding and Patel

• Poised to better serve Saskatchewan, where management notes potential

demand increase of oil storage tanks

• Through consolidation, TRU can realize significant savings and improved

operational flexibility

CONS:

• Toth has concerns about the corporate image being associated with a small town

• Shutdown and relocation of equipment may cause loss of sales, customer

satisfaction and negatively impact TRU’s brand reputation35

35 Howard Gross, and Morrie Rutman, “Relocating/Consolidating Facilities – Caution Ahead,” Richter

Consulting Inc, accessed May 13, 2015,

http://www.richterconsulting.com/newsletters/articles200509/relocating_facilities.html

55

• Possible resistance from current employees can compound existing issues with

high turnover

• Assets may be lost during move due to poor inventory management

• Adds more complexity to the current distribution system



• Contribution to N.I. 234K in 2017, 264.5K in 2018 and 271.5K in 2019

• Initial investment 1,075K -1,142K

• TRU will acquire 25,00 square feet to accommodate existing production and

35,000 square feet of excess production capacity

• Incremental revenue is stable and N.I. is rising

Table 10 - New Site Acquisition

Expected Best Worst

NPV (10%, 10 Years) 1,259.8 1,354.5 1,137.6

NI 2017 234.0 234.0 234.0

NI 2018 264.5 264.5 264.5

NI 2019 271.5 271.5 271.5

Financing 1,074.7 1,007.8 1,141.7

Capacity Acquires 60K sq ft of building and 10 acres of land area

IRR 34% 38% 30%

P.I. 2.17 2.34 2.00

Payback 3.19 2.93 3.53

56

Figure 24 - New Facility

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57

Alternative 7 – Outsourcing Cradles Production

TRU has received a quote from the supplier of transport cradles and must now decide

whether to keep the production in house or purchase externally.

Pros

Lower cost and recover 500 sq ft of production space

Supports initiative to employ people with disabilities

Cons

Quality and specifications cannot be guaranteed

scheduling discrepancies may cause delays in TRU’s delivery schedule

Table 11 - Cradle Cost

Cradle Cost Buy from supplier Internal Cost

Purchase Price per Cradle $8.45

Delivery Charge per Cradle $0.13

Labour cost $5.30

Materials cost $3.00

Direct overhead costs 20% of material $0.60

Total cost per Cradle $8.58 $8.90

58

Recommendation

It is recommended that TRU adopt a combination of revenue growth and cost cutting

strategies based on its customer intimacy value proposition.

In order to achieve the set targets and goals, it is recommended that TRU participate

in the custom fabrication proposal, purchase the new site in Balgonie, open a new

office in Edmonton and defer its participation in metal recycling venture until 2017.

These initiatives will allow TRU to mitigate market risks through product and

customer base diversification, realize operational savings and increase sales. It is

also recommended that TRU rejects proposals to acquire GT and the production of

HBC.

Table 12 - Quantitative Comparison of Alternatives

Salt Silos

Recycling New Site

Sales Office

GT HBC (SK Retail)

Min 10% ROI Met Met Met N/A Met Met

Space Constraint

-8K Sq Ft - 9K sq ft +60K Sq Ft

N/A +31.25K Sq Ft

-8K sq ft

Incremental NI 2017: 245.4k

229.1 86.5 234.0 59.6 984.6 163.7

Incremental NI 2018: 345.4k

136.3 80.4 264.5 80.0 906.2 196.9

Incremental NI 2019: 245.4K

63.6 86.2 271.5 88.1 1,080.5 205.5

P.I. 2.84 1.81 2.17 N/A 1.20 2.63

Payback 1.72 3.75 3.19 N/A 4.66 2.24

Financing 398 218 1,075 55 5,000 605

59

The custom fabrication proposal aligns with TRU’s customer intimacy value

proposition in expanding their custom made tank production capabilities. The

opportunity also aligns with TRU’s strategic goal of revenue growth through product

diversification. It further allows TRU to expand its reach beyond the existing

customer base in agriculture and oil industries, which helps mitigate the risks

associated with market fluctuations in these industries.

The recycling venture allows TRU to expand its footprint in the industry value chain,

while meeting the goals of revenue growth through product diversification. This

opportunity will also help mitigate the risk associated with increases in the key

production material, steel. By taking an active role in its scraps disposal, TRU is

demonstrating its commitment to environmental preservation, a growing public issue.

By purchasing a new site in Saskatchewan and consolidating all operations, TRU will

gain additional management control, increases in production capacity and

operational savings. This added financial and production flexibility will allow TRU to

focus on efforts to better understand its customers in order to continue to offer high

quality, customized tank solutions.

The new sales office in Edmonton will allow TRU to grow its reputation as a quality

tank provider, which can be utilized to increase sales of existing products and offer

opportunities to cross sale future products.

The capital requirement for the recommended alternatives is $1,075K in 2015 for the

new site purchase and renovations with an additional $398K in early 2016 for the

purchase of salt silos equipment. The total requirement of $1,473K for 2015 and

early 2016 can be met using the $1,633K available through existing cash in hand,

differed dividend and additional equity injections. An additional $218K in mid-2016 is

60

required for the setup of the recycling venture, which will be financed through cash

generated from operations in 2016.

The acquisition of GT will likely force TRU to match unionized wages in order to

retain its current welders, which will compound the issue of declining gross margins

and put TRU. The additional financial strain associated with the $4.5 million loan

and added interest payments will damage TRU’s flexibility in providing customized

tank solutions. A move away from the differentiating feature of TRU from other

competitors will likely damage the long term growth of the firm.

The production of HBC does not provide sufficient diversification for TRU to mitigate

risks associated with market fluctuations in agribusiness. The increasing focus on

any particular downstream markets can cause significant loss should the projected

sales not materialize.

Transport cradles should be outsourced to realize cost savings and demonstrate

TRU’s commitment to the community.

While all alternatives will contribute positively to the net income targets, with shorter

payback periods and the higher return on investment as measured by the profitability

index, the recommended course of action will provide the highest financial gain with

the lowest financial risk.

61

Implementation Plan

Detailed action plan listed in Appendix 13

Revised Mission

“TRU strive to provide the highest level of customer satisfaction by providing quality

steel storage tanks to customers in Canada and the northern United States in an

environmentally friendly and sustainable manner.”

It is recommended that TRU integrates the new mission statement with company

core values such as being adaptive to change, being customer centric into its daily

practices to help build a consistent and strong corporate culture. By providing its

employees with continued training and skills development opportunities, TRU can

foster a sense of common purpose at all levels of the company.

Strategic Implementation

Sales Office

In order to minimize the damage associated with the loss of two experienced sales

staff, Wall should communicate the decision to the team immediately and start

recruiting for two new sales staff in Alberta. Severance packages and referrals for re-

employment should be arranged for the employees who choose not to relocate. Wall

should also oversee the transition of their accounts to ensure proper care for these

customers are taken to avoid damaging relations.

The increase in sales will demand increase in production and excess labour

capacity. TRU will have to find more labour to supplement its current workforce. By

62

bringing in the foreign welders through a temporary foreign worker program

sponsored by Immigration Canada.36 The marketing campaign should be designed

to reflect TRU’s commitment to Alberta.

Purchasing New Site at Balgonie, Saskatchewan

With Toth and some other employees voicing their concern over the move to a new

site, it is critical TRU address these concerns in a timely manner to facilitate a

smooth transition. By communicating the long term savings of consolidation and the

benefits to staying true to TRU’s Saskchetwan’s roots, the management team can

obtain Toth’s buy-in in order to communicate a consistent message from the top

down. By sharing the same message to its employees in a townhall meeting and

clearly outlining incentives such as mileage compensation and shift changes, TRU

will demonstrate its commitment to its employees and help build consensus in the

firm.

TRU should also establish a task force to oversee all efforts related to the move,

including: renovation, disassembling the production lines, transporting, reassembling

them into the new plant. This will minimize losses and confusion due to downtime.

Salt Silo

First, TRU must determine a reasonable bidding price and submit a response to the

RFP that maximizes its chance of win. $5,900K is a price that reflects quality and

positioning of TRU’s products without reducing winning chances. The required 8,000

square feet of space can be fulfilled by allocating the appropriate space in the new

36 Employment and Development Canada, “Temporary Foreign Worker Program Manual,” Government of

Canada, accessed on May 8, 2015, http://www.esdc.gc.ca/eng/jobs/foreign_workers/manual/index.shtml

63

site in Saskatchewan. Due to the lack of experience in the salt silo production

business, TRU needs to assign one of their senior production leads under large tank

division to supervise the setup and onboarding of salt silos after some training. TRU

also needs to take in the consideration of complexity to manage another line inside

the new plant and create a flow that optimizes production. The similar challenges of

labour shortage will be addressed by hiring temporary foreign workers, and

developing skill-training program to help employee to become journeymen. TRU

must be aware of possible decreases in demand due to environmental concerns and

utilize their newly establish presence in Manitoba to sell existing tank offerings.

Scrap Metal Recycling

TRU will inform MSAB that they are interested in the scrap metal recycling program,

however it would like to defer the project for one year. Given that MSAB is looking for

a partner to front 100% of the cost, it is not likely that they will find an alternative in a

year’s time for this initiative. In mid-2016 with additional funding from operations,

TRU can consider entering into the joint venture program and place the metal

recycling line in its Saskatchewan plant, which minimizes concerns over multiple site

operations. TRU’s management team must take an active role in the operations of

the facilities in order to gain valuable experience in the industry. Responsibilities and

accountabilities must be clearly defined between TRU and MSAB to avoid possible

conflict over major decisions.

64

Change Management

In the next year, TRU will be making some significant changes to its operations,

including consolidation into a new production facility, adding production capacity for

salt silos as well as participating scrap metal recycling. In order to mitigate the

implementation risk of suffering from employee backlash against the move, it is

recommended that TRU forms a committee to provide an oversight of all upcoming

changes required. The committee should be formed with Harding as the lead change

agent. Harding will be taking the charge for shaping the implementation of the

consolidation effort for the company and for socializing the ideas on the leadership

level to get buy-in from Toth and others.

The first step to establish a unified vision is to solicit support from key stakeholders.

Harding needs to persuade Toth to take on this option based on the long term

benefit in operational efficiency gain. After a unified vision is established on the

leadership level, will develop a communication plan to communicate the changes to

the employees to engage them and promote agreement.

Staff education and contingency plans are also instrumental in ensuring a smooth

transition.

65

Risk Management

Product Risk

TRU can manage the product risk of leaking and damage due to unforeseen

circumstances by purchasing industrial insurance that can potentially cover damage

related to misusage or accidents. It is recommended that TRU takes a more

proactive stance on educating all its customers on the specification and usage

guidelines. Customers should be requested to sign-off on a contract acknowledging

that they have completed knowledge transfer and are aware of the guidelines.

TRU will be able to manage the risk of salt silo project not continuing after three

years by hiring on an additional sales person who specializes in selling to

government and large institutions to build relationship early. TRU can also start

looking for other clients who would be interested in large salt silos and build relations

with them.

Financial Risk

The salt silo contract project is expected to generate positive incremental income

over the next three years based on the government contract. There is a risk that after

the initial three years, the contract will not be renewed due to reasons such as

environmental concerns of road salt, or budget changes.

This is partially mitigated by building and maintaining relationships with other

customers in the private sector such as oil producers and agriculture co-ops to

discover similar opportunities.

It is still very important to foster good relationships with the three governments based

on trust and supply quality products and services. More innovative agreements and

contracts will be important for TRU to maintain long term contracts with government

to help hedge against volatility of the private sector.

66

Operational Implementation

Raw Material Supply

In order to mitigate the risk of supply chain shock due to raw material scarcity, TRU

will develop relations with various foundries via the scrap metal recycling program

that will start in 2017. This will potentially help expand the supplier list and remove

the risk of single supplier. TRU will also start to procure sheet metal from other

suppliers to diversify the sourcing.

Human Resources

TRU is facing high employee turnover and low morale among welders, as their wages

are below unionized levels, resulting in an interest from welders to pursue unionization.

There are also no standard hiring practices and the lack of a payroll system has raised

concerns among management.

High employee turnover can have severe financial implications due to high costs

associated with onboarding employees.

In order to address the high turnover issue, TRU needs to establish a standard

hiring practices and hire the right employees from the beginning. Patel should

monitor the hiring process of welders and assess candidates’ qualifications carefully

to ensure that they possess the right skills and character.

Currently, TRU does not have dedicated human resources staff, which may be

addressed by sponsoring existing admin staff to complete an HR certification. The

internal promotion is cost efficient and demonstrates TRU’s commitment to its

employees. A central payroll system should be implemented to keep track of the

staff and their salary expenses.

67

Compensation

TRU’s management need to modify their current compensation plan and match the

welders’ wages to the industry standard. Offering bonus structures such as profit-

sharing plan will improve employee morale and loyalty. Compensation and benefits

packages should be reviewed annually in order to be consistent with market trends.

By implementing a company-wide performance evaluation system such as balance

scorecard, management can recognize and reward accomplishments of employees,

as well as their need for training. This will lead to higher employee satisfaction and

morale.37

Designing Piece-Work bonus system for plant workers provides incentives for

productivity improvement.38 Employees are encouraged to earn individual bonuses

based on their daily output above the standard amount that meets quality

requirements. These bonuses can be paid weekly/ monthly to provide more timely

incentive.

Legal Concerns

There is a possible threat of negative media coverage and lawsuit regarding tank

leakage due to inappropriate usage by a customer. Although the cost of cleanup is

high, TRU should still consider bearing part of the costs as a sign of goodwill to build

stronger client relationships and avoid negative media coverage.

In order to prevent this type of issues in the future, TRU should sign a contract with

all its customers to notify them of their responsibilities after purchase of the tanks.

37Imberman, Woodruff, “Using Incentive Plans to Boost Productivity in Manufacturing”, JOM, accessed on

May 2, 2015, http://www.tms.org/pubs/journals/jom/matters/matters-9811.html 38 Kaplan, Norton, “Using the Balanced Scorecard as Strategic measurement”, Harvard Business Review,

accessed on May 4, 2015, https://hbr.org/2007/07/using-the-balanced-scorecard-as-a-strategic-management-

system

68

The customer should also be advised to buy insurance to cover possible spillage

risks. TRU can offer installation services for new tanks and regular inspection for

signs of corrosion.

TRU also needs to consider buying appropriate insurance to avoid incurring high

expenses for possible spoilage cleanups and cover its liabilities.

Ethical Issues

In order to secure a production bonus, one of TRU’s production supervisors deviated

from standard practices and ordered steel from an unapproved supplier who

supplied thinner sheets. Policies should be created to ensure employee’s

accountability when ordering supplies. Any violation of the rules should be reported

to upper management and lead to a warning, and eventual termination if behaviour

persists. Purchase Orders for production materials should be approved and signed

by production manager in accordance with company policies.

Production Efficiency

Skill training programs will be the key to improve efficiency. An intensive training and

apprenticeship program will be designed for welders to develop the required skills to

become journeymen. This will support matching their wages to skilled workers level.

Management should also support sharing talent between employees to develop the

necessary skills from within the company. This will minimize hiring costs and improve

employee loyalty. Offering flexible work schedules supports adequate work-life

balance will also help keep workers perform at the highest level.

69

Information System

A consolidated information system will help reduce inefficiencies suffered by

management in the planning, production and customer relationship management

processes. It is recommended that TRU will take a multi-phased approach to

upgrade its information system to address these deficiencies.

The first phase will begin by TRU deploying a cost and inventory control system in

2015, which will reduce costs associated with mismanagement of inventory. TRU

should look at solutions that are cost-effective and simple to operate. Sage offers an

ERP solution that costs less than 3K a year and has the ability to add features in the

future.39

In the subsequent phase, TRU will deploy the customer management module to

enable tracking of customer order status, accounts and service records. The

customer management module will increase customer satisfaction and offer an

advantage to TRU’s sales team. NetSuite offers a CRM module that can be easily

integrated with the web site TRU has at the cost of 3K a year40. It will be

implemented with a web portal from which customers will be able to log in and track

the status of their orders.

For a list of more detailed actions see Appendix 13 for action plan.

39 Sage ERP, “Sage 300 ERP Solutions,” Sage Corporation, accessed on May 23, 2015,

http://na.sage.com/ca/erp/sage-300-erp 40 NetSuite, “NetSuite CRM+,” NetSuite, Accessed on May 23, 2015,

http://www.netsuite.com/portal/products/netsuite/crm.shtml

70

Financial Forecast

Pro-forma statements are listed in Appendix 14-16

The recommended course of action will result in net incomes of $1,134K in

2017, $1,345K in 2018 and $1,189K in 2019, meeting the targets set out by

management

The total requirement of $1,473K for 2015 and early 2016 can be met using the

$1,633K available and the additional $218K required in mid-2016 can be

funded through funds from operations.

Performance Measurement

To turn the strategy of TRU into concrete measureable action, a balanced scorecard

has been developed to demonstrate objectives and measures (Appendix 17). The

balanced scorecard is comprised of a set of metrics used to effectively communicate

and drive organizational changes.

Financial

TRU’s measurement of profitability performance will be whether or not it can achieve

the NI of $800k in 2017, and generate an additional $100k each year in the next two

subsequent years. The recommended course of action will stimulate sales and

reduce operating costs, allowing TRU to achieve these targets.

71

Customer

TRU’s market share can be further improved by renewed effort in new customer

onboarding through the new Alberta sales office and salt silo project, as well as

improving customer satisfaction and product quality. The new customer onboarding

will be measured by the number of new customer on-boarded each year. Customer

satisfaction will be measured by responses to product reviews and customer

surveys.

Internal Business Processes

Improving effectiveness of quality control will greatly increase the quality of the tanks

TRU produces. Implementation of a computerized inventory control system will help

reduce inefficiencies in the inventory and material management processes. Adhering

to industry best practices will help reducing inefficiencies in the manufacturing

processes. Working with a diverse field of suppliers will help reduce risk of supply

chain shock in raw material acquisition process. The success of process

improvement will be measured by TRU’s ability to reduce cost of goods sold as a

percentage of revenue, and the improvement of contribution margin per labour hour.

Learning and Growth

The most important objectives for learning and growth are developing employee

skills, also attracting and retaining skilled employees. Maintaining employees’

satisfaction is key to reducing cost related to turnover. This can be measured in the

percentage reduction in employee attrition. Establishing skill development program

will bridge the skill gap that exists today for junior welders to journeyman welders.

This will reduce the defects in welding and improve product quality as well as

customer satisfaction. Communication is also an important facet of the corporate

72

culture. Having at least two townhall meetings a year will help management to more

effectively communicate information, directions and plans for the organization to

employees.

Conclusion

The steel tank industry is an extremely competitive industry. In order to excel in this

industry, TRU must increase its market presence in Alberta and diversify its product

line. It is recommended that TRU pursue the custom fabrication proposal, venture into

metal recycling and purchase the new site in Balgonie, Saskatchewan and open a

sales office in Edmonton, Alberta.

This recommendation is expected to offer us a net income of $1,318K in 2017,

$1,528K in 2018 and $1,381K in 2019. The capital requirements of $1.473 million can

be met using cash on hand, dividend suspension and additional equity injection.

This recommendation will ensure that TRU is well positioned for a long term sales and

net income growth with a continued commitment to customer intimacy.

73

Appendices Appendix 1 – TRU Strategy Map

74

Appendix 2 – SWOT Analysis

Strengths

Flexible and quick to adapt to customer needs

Stayed abreast with new technological trends and innovations in the industry

Strong senior management team with many years of experience in the steel manufacturing industry

Experienced sales staff

Environmentally friendly and Transport Canada approved products

Strong Distribution Network

market presence in both of the fast growing areas of Canada, Alberta and Saskatchewan

website has up to date product and company information

Weaknesses

Limited storage - have to operate three sites to accommodate wholesale orders

Multiple site operations causing excess inventory and travelling costs

No standardized hiring practices

As many as 40 weld deficiencies being found in certain tanks

Sales staff are becoming tired of the extensive travel

High turnover of skilled labor

Bonus system does not align goals between sales and production

Lack of a payroll system

Manual Costing System

Large volume customers in the oil industry are taking 60 days or more to settle their accounts, thereby straining cash flow

Customer complaint of tank leakage

Compliance issue with material ordering for production

Reliant on a single sheet steel supplier

500 Sq Ft of production space is occupied by the production of transport cradles

Website does not support order tracking of sales information analysis

Opportunities

World’s need for oil will increase by 30% before 2040

Alberta’s daily oil production will double by 2020

Certain parts of Saskatchewan has lower drilling costs due to shallower oil deposit, which may result in growth in the demand of oil storage tanks

Growing interest in building pipelines, which will likely increase the need for storage solutions at ports, while the oil waits for international distribution.

Emerging markets are important sources of revenue for both oil and agri product producers as they experience economic and population growths41

Availability of foreign workers to alleviate the current shortage of local skilled labour

New technology can decrease human errors and reduce bottlenecks

Government incentives for skills training42

41 Soshkin, “Metal Tank Manufacturing in Canada,” 8. 42 MarketLine, “Country Analysis Report: Canada, In-depth PESTLE Insights,” 25.

75

Threats

Sales volume of current products expected to remain flat for the next 5 years

Extraction and transportation of oil can cause significant environmental damages.

Usage of oil products has increased carbon emissions

Emerging economies such as China and India are becoming increasingly competitive in agriculture and agri-food industries

Global competition is increasing and costs are lower in other countries such as South Korea

The metal tank manufacturing sector is dependent on the performance of downstream consumers, which is cyclical and subject to market trends.

With significant number of welders nearing retirement age, the current shortage of skilled labour is likely to grow.

The trend of consolidation and takeovers is a consistent threat.

Canada has limited infrastructure to export oil outside of North America and with United States expecting to become energy self-sufficient by 2035, the reliance on a single export market is a major concern.

Threat of unionization of current workforce

World steel prices and demand are projected to rise over the next 5 years43

Appendix 3 – Ratio Analysis

TRU Ratio Analysis

Audit Trail 2014 2013 2012 2011

Revenues As specified in case (in 000’s) 8,510 7,394 5,493 7,007

Current ratio Current Assets / Current Liabilities

1.84 1.79 1.71 1.36

Receivables turnover Sales/Avg Accounts Receivable 8.49 13.04 12.87 N/A

Inventory turnover COGS / Average Inventory 8.93 4.56 3.88 N/A

Time interest earned OIBTI/Interest Expense 11.15 10.43 2.70 12.66

Total debt/equity Total Debt / Total Shareholders’ Equity

1.34 1.54 1.89 1.64

Gross margin Gross Profit/Total Revenue 22.41% 21.25% 21.65% 21.52%

Adjusted GM Adjusted GP/Total Revenue 21.89% 22.78% 17.95% 24.99%

Net margin Net Income/Total Revenue 6.52% 6.58% 1.57% 7.94%

Benchmark Analysis with Similar Sized Competitors

Benchmarks Tank Rentals Inc. AB Co. PrairieTank Tanks of Steel TanksRus

Revenues (‘000s) 12,000 11,400 5,200 14,800 8,510

Current ratio 1.62 2.02 1.95 1.42 1.84

Receivables turnover 12.2 8.8 10.2 7.61 8.49

Inventory turnover 14.2 9.3 9.8 6.8 8.93

Times interest earned 20.8 12.2 10.1 3.2 11.15

Total debt/equity 0.82 1.01 1.22 2.02 1.34

Gross margin 98.20% 20.50% 19.40% 17.83% 22.41%

Adjusted Gross Margin 21.89%

Net margin 8.41% 9.20% 5.92% 3.21% 6.52%

43 “IBISWorld Business Environment Report: World Price of Steel – March 2015,” 1.

76

Benchmark Analysis with Industry Leaders

Liquidity (R = Revenue (listed in millions), C = Current Ratio)

2011-R 2012-R 2013-R 2014-R 2011-C 2012-C 2013 - C 2013 - C

VIC 417 412 395 472 1.3 1.7 1.75 1.75

ARF 457 457 456 474 2.41 2.41 2.98 2.98

PFB 89 82 85 90 2.14 1.48 2.65 2.65

IBH 3 4 6 8 0.46 0.76 0.88 0.88

TRU 7 5 7 8.51 1.36 1.71 1.79 1.79

Activity (AR = accounts receivable turnover, IN = Inventory Turnover)

2011-AR 2012-AR 2013-AR 2014-AR 2011 – In 2012-In 2013-In 2014-In

VIC 3.92 3.74 7.59 4.03 2.9 2.67 2.8 3.09

ARF 1.83 1.83 3.79 1.69 4.33 4.33 9.01 4.67

PFB 5.83 4.92 4.94 5.63 4.82 4.32 4.35 4.24

IBH 21.42 25.12 20.2 19.14 6.17 8.47 15.31 6.98

TRU N/A 12.87 13.04 8.49 N/A 3.88 4.56 8.93

Coverage (TIE = Time Interest Earned, D/E = Debt/Equity)

2011-TIE 2012-TIE 2013-TIE 2014-TIE 2011-D/E 2012-D/E 2013-D/E 2014-D/E

VIC 3.47 3.83 0.18 1.39 3.95 3.84 6.32 0.81

ARF 1.65 1.65 1.15 4.3 25.04 -18.91 6.32 1.48

PFB 10.01 0.41 8.63 2.09 0.5 0.45 0.63 0.25

IBH 18.92 3.55 1.88 6.38 0.88 0.6 0.74 0.16

TRU 12.66 2.7 10.43 11.15 1.64 1.89 1.54 1.34

Profitability (GM = Gross Margin, NM = Net Margin)

2011-GM 2012-GM 2013-GM 2014-GM 2011-NM 2012-NM 2013-NM 2014-NM

VIC 16.30% 18.40% 15.20% 15.80% 2.80% 2.58% -1.40% 0.12%

ARF 18.80% 18.80% 18.44% 15.37% -7.90% -7.90% -0.64% -18.29%

PFB 20.15% 18.30% 16.57% 18.36% 3.60% 0.16% 8.00% 1.02%

IBH 0.00% 0.00% 16.68% 21.51% 27.52% -3.38% -1.00% 10.80%

TRU 21.52% 21.65% 21.25% 22.41% 7.94% 1.57% 6.58% 6.52%

Adj 24.99% 17.95% 22.78% 21.89%

Appendix 4 – Trend Analysis

Trend Analysis Balance Statement Values Rate of Change

2014 2013 2012 2011 2014 2013 2012 2011/2014

Total Assets 3767 3524 3225 3143 7% 9% 3% 20%

Current Assets 2461 2209 1909 1579 11% 16% 21% 56%

Cash 667 283 -162 279 136% -274% -158% 140%

Accounts Receivable 1090 915 218 636 19% 319% -66% 72%

Capital Assets 1305 1315 1317 1564 -1% 0% -16% -17%

Leasehold Improvements 239 318 398 477 -25% -20% -17% -50%

Total Liability 2155 2135 2108 1952 1% 1% 8% 10%

Current Liability 1337 1233 1114 1159 8% 11% -4% 15%

Long Term Liability 819 902 994 794 -9% -9% 25% 3%

77

Trend Analysis Income Statement Values Rate of Change

2014 2013 2012 2011 2014 2013 2012 2011/2014

Revenue 8510 7394 5493 7007 15% 35% -22% 21%

COGS 6548 5610 4376 5040 17% 28% -13% 30%

Gross Profit 1863 1685 986 1751 11% 71% -44% 6%

Gross Margin 21.89%

22.78%

17.95%

24.99%

-4% 27% -28% -12%

Administrative Wages and Benefits

620 556 454 460 12% 22% -1% 35%

G&A Expense (% Sales) 11.75%

12.25%

14.02%

12.71%

-4% -13% 10% -8%

Net Profit 555 487 86 557 14% 464% -84% 0%

Net Margin 6.52%

6.58%

1.57%

7.94% -1% 319% -80% -18%

Appendix 5 – Contribution Margin Analysis

Contribution Margin Analysis

CM Analysis Audit Trail 99 Gal 500 Gal 1,000 Gal 25,000L 50,000L

Quantity Sold As per Case 400 750 1462 36 27

Avg Selling Price As per Case $1,375 $2,150 $3,225 $18,900 $33,650

Labour Hours Required

As per Case 6.50 10.20 15.40 78.80 112.50

Sq Ft Required As per Case $4,000 $5,000 $6,000 $4,500 $5,500

Material Cost As per Case $618 $799 $1,182 $7,538 $16,423

Labour Cost 27*Labour Hours $176 $275 $416 $2,128 $3,038

Variable Overhead 59.25/2*Labour Hours $193 $302 $456 $2,334 $3,333

CM/ unit

Avg Selling Price– Variable Cost $389 $773 $1,171 $6,900 $10,857

CM/ Labour Hours

CM per Unit/Labour Hours Required $59.84 $75.82 $76.02 $87.56 $96.51

CM/ Sq Ft

CM per Unit*Quantity Sold/Sq Ft Required $38.90 $116.01 $285.25 $55.20 $53.30

CM/Sqt-Small Tank Site $163.14

CM/Sqt-Large Tank Site $54.15

Appendix 6 - Sales Growth Analysis

Product Sales Data Rate of Change

2014 2013 2012 2011 2014 2013 2012 2011/2014

99 Gallon 400 447 452 593 -11% -1% -24% -33%

500 Gallon 750 723 533 694 4% 36% -23% 8%

1000 Gallon 1462 1250 878 1215 17% 42% -28% 20%

25000 Liter 36 32 22 23 13% 45% -4% 57%

50000 Liter 27 23 18 17 17% 28% 6% 59%

Alberta 35% 34% 31% 39% 3% 10% -21% -10%

Saskatchewan 51% 47% 48% 53% 9% -2% -9% -4%

Other 14% 19% 21% 8% -26% -10% 163% 75%

78

Appendix 7 – Get Tanked

Incremental Income Statement ($'000) - Acquisition of Get Tanked

Audit Trail 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Sales - 1000 Gal Wholesale Quantities * Selling Price 3042 3362 3362 3530 3530 3530 3530 3530 3530 3530

Sales - 135 Gal Wholesale Quantities * Selling Price 2427 2895 2895 3040 3162 3162 3162 3162 3162 3162

Sales - 1000 Gal Retail Quantities * Selling Price*Growth 1009 1060 1113 1168 1227 1288 1352 1420 1491 1565

Total Sales Sum of all Revenue 6478 7317 7370 7738 7918 7980 8044 8112 8183 8257

Material Cost / Tank 713*1.03^(current year-2015) 0.73 0.76 0.78 0.80 0.83 0.85 0.88 0.90 0.93 0.96

Labour Cost / Tank (labour rate+expected increase)*1.5

0.05 0.05 0.05 0.05 0.06 0.06 0.06 0.06 0.06 0.06

Overhead Cost overhead rate*1.5 0.22 0.22 0.22 0.22 0.22 0.22 0.22 0.22 0.22 0.22

COGS /Tank Material + Labour + Overhead Costs

1.00 1.02 1.05 1.07 1.10 1.13 1.15 1.18 1.21 1.24

COGS - 1000 Gal COGS/Tank * (wholesale + Retail quantities)

2485 2679 2775 2875 2981 3092 3210 3333 3464 3602

Material Cost / Tank 545*1.03^(current year-2015) 0.56 0.58 0.60 0.61 0.63 0.65 0.67 0.69 0.71 0.73

Labour Cost / Tank (labour rate+expected increase)*1.5

0.03 0.03 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04

Overhead Cost overhead rate*1 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15

COGS /Tank Material + Labour + OH Costs 0.74 0.76 0.78 0.79 0.81 0.83 0.85 0.88 0.90 0.92

COGS - 135 Gal COGS/Tank * Sales Quantity 1624 1893 1939 1986 2116 2168 2221 2276 2332 2391

Total COGS 1000 Gal + 135 Gal COGS 4109 4572 4714 4861 5097 5260 5431 5609 5796 5992

Gross Profit Total Revenue - Total COGS 2369 2744 2656 2877 2821 2719 2613 2502 2386 2265

Plant Wages 325000*1.02^(current year-2014) 338 345 352 359 427 436 444 453 462 471

Amortization - PPE 30% 465 326 228 159 112 78 55 38 27 19

Equipment repair & main 200,000+50,000*(current year - 2014)

300 350 400 450 500 550 600 650 700 750

Line changeover 60000*1.02^(current year-2014) 62 64 65 66 68 69 70 72 73 75

Processing supplies 137841*1.02^(current year-2014) 143 146 149 152 155 158 162 165 168 171

Property lease (Base rate*growth+occupany rate*growth)*50000

410 455 458 460 463 465 513 516 519 522

Rework Revenue * 0.25% 16 18 18 19 20 20 20 20 20 21

Allocated overhead sum of OH rates* Quantities Sold (861) (911) (917) (924) (946) (954) (962) (971) (980) (989)

Total Production costs 875 793 752 742 798 822 902 944 990 1040

79

Appendix 7 - Continued Administrative Wages as specified * growth 375 193 198 204 210 217 223 230 237 244

Administrative staff costs as specified * growth 125 125 188 191 195 199 203 207 211 215

Sales: Commissions 0.05*Revenue 50 53 56 58 61 64 68 71 75 78

Sales: Wages and Benefit 36000*2 sales staff 72 72 72 72 72 72 72 72 72 72

Amortization - Office 20% 40 32 25 20 16 13 10 8 7 5

Other administrative costs 67950*growth 71 72 74 75 77 78 80 81 83 84

Total Expenses 733 546 612 621 632 643 656 669 684 699

EBIT GP - Total Production Costs - Total Expenses

761 1405 1291 1514 1392 1254 1056 889 712 526

Interest Expenses 2.25% 101 92 83 73 63 53 43 33 22 11

Income Before Tax EBIT - Interest Expenses 660 1313 1208 1441 1329 1201 1012 857 690 514

Income Tax 25% Income before tax * 0.25 165 328 302 360 332 300 253 214 173 129

Net Income Income before tax - tax 495 985 906 1080 997 901 759 642 518 386

Total Operating CF 499 1342 1159 1260 1124 992 824 689 551 410

PV Factor (10%) 0.91 0.83 0.75 0.68 0.62 0.56 0.51 0.47 0.42 0.39

PV of Operating CF 454 1108 871 861 698 559 423 322 234 158

Tax Shield - Office 31.6 IRR 15%

Tax Shield - Plant 277.4 PI 1.20

Capital Outlay 5000 Payback 4.66

NPV over 10 years PV of Operating CF + Tax Shield - Capital Outlay

997

Debt to Equity Raito 1.94 1.19 0.72 0.44 0.28 0.18 0.12 0.08 0.05 0.04

DCF Valuation 454 1108 871 861 698 559 423 322 234 158

DCF Valuation over 10 years 5688

Assumption – The 500K required to upgrade equipment midway through 2016 is expensed; - Sensitivity: if wage rates at TRU are to match that of GT’s unionized rate starting in 2016 and continue to grow at the same pace;

Sensitivity Analysis ('000s)

Gross Profit 2369 2744 2656 2877 2821 2719 2613 2502 2386 2265

Wage Adjustment 174 232 251 270 290 309 328 348 367 386

Adjusted Gross Profit 2195 2512 2405 2606 2532 2410 2285 2154 2019 1879

Net Income 364 811 718 878 779 669 513 382 242 96

Net Operating Cash Flow 369 1168 971 1057 907 760 578 428 276 120

NPV (565)

80

Appendix 8 – Metal Recycling

Incremental Income Statement ($'000) – Metal Recycling Venture

Audit Trail 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Revenue

Scrap Steel Revenue Scrap Steel Cost * 2 735 945 1050 1071 1092 1114 1137 1159 1182 1206

Clean Copper (80%) 2*50*32*#builders*0.8*2*growth 102 128 154 157 160 163 166 170 173 176

Dirty Copper (20%) 2*50*32*#builders *0.2*0.75*growth 10 12 14 15 15 15 16 16 16 17

Other Metal Revenue Other Recyclable Metal Cost * 1.75 18 22 26 27 27 28 28 29 30 30

Total Revenue 865 1107 1244 1269 1295 1320 1347 1374 1401 1429

Scrap Steel Cost 150000*#companies*0.07*growth 368 473 525 536 546 557 568 580 591 603

Recyclable Copper Cost 2*50*32*#builders*1* growth 64 80 96 98 100 102 104 106 108 110

Other Metal Cost #lbs*0.25* growth 10 13 15 15 16 16 16 17 17 17

Total COGS 442 565 636 649 662 675 688 702 716 731

Gross Profit Total Revenue - Total COGS 423 542 608 620 633 645 658 672 685 699

Manual Labourers - Wage # of workers * 15*7.5*5*52 29 59 88 90 91 93 95 97 99 101

Equip Operators - Wage # of workers * 20*7.5*5*52 39 78 117 119 122 124 127 129 132 134

Manager - Wage 50000*expected growth 50 50 50 51 52 53 54 55 56 57

Benefits total wage*0.15 18 28 38 39 40 41 41 42 43 44

Leasing 9000*11.25*expected growth 101 103 105 107 110 112 114 116 119 121

Insurance 5000*expected growth 5 5 5 5 5 6 6 6 6 6

Repair and Maintenance 218000*0.1*expected growth 22 22 23 23 24 24 25 25 26 26

Transportation 45600*expected growth 46 46 46 47 47 48 49 50 51 52

Amortization-Equip 20% 11 19 15 12 10 8 6 5 4 3

Amortization-Comp 55% 1 1 1 0 0 0 0 0 0 0

Amortization-Crusher 20% 6 11 9 7 6 4 4 3 2 2

Amortization-Leasehold 5 year straight line 5 5 5 5 5 0 0 0 0 0

Total Expenses 332 427 501 505 511 513 520 529 538 547

Income Before Tax Gross Profit - Total expenses 91 115 107 115 122 133 138 143 147 152

Income Tax 25% 0.25* Income before tax 23 29 27 29 30 33 34 36 37 38

Net Income Income before tax - income tax 68 86 80 86 91 99 103 107 111 114

Adjusted Net Income (net income/2)*(1+0.10) 38 48 44 47 50 55 57 59 61 63


PV Factor (10%) 0.91 0.83 0.75 0.68 0.62 0.56 0.51 0.47 0.42 0.39

PV 44 54 44 41 37 34 32 29 27 25

81

Appendix 8 Continued

Tax Shield - Equip 16.7

Tax Shield – Comp 0.6 IRR 24% Tax Shield - Crusher 9.5 PI 1.81

Total Capital Outlay Equipment+Computers+Car Crusher+Leasehold 218.0 Payback 3.75

NPV over 10 years PV of Operating CF + Tax Shield - Capital Outlay 177.2

Assumptions

Net Income adjusted for 50% of TRU's share plus 10% of MSAB's share

Operating Cash Flow = Adjusted NI + 50% of amortization

50% of all tax shield benefits will be realized for TRU

The half year rule applies to depreciation of newly acquired assets

Sensitivity analysis assumes that only 85% of projected intake can be achieved

Sensitivity Analysis ('000s) Audit Trail 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Revenue

Scrap Steel Revenue Scrap Steel Cost * 2 625 803 893 910 929 947 966 985 1005 1025

Clean Copper (80%) 2*50*32*#builders*0.8*2*growth 102 128 154 157 160 163 166 170 173 176

Dirty Copper (20%) 2*50*32*#builders *0.2*0.75*growth 10 12 14 15 15 15 16 16 16 17

Other Metal Revenue Other Recyclable Metal Cost* 1.75 15 19 22 23 23 24 24 25 25 26

Total Revenue 752 962 1083 1104 1127 1149 1172 1196 1219 1244

Scrap Steel Cost 150000*#companies*0.07*growth 312 402 446 455 464 474 483 493 503 513

Recyclable Copper Cost 2*50*32*#builders*1* growth 54 68 82 83 85 87 88 90 92 94

Other Recyclable Metal Cost #lbs*0.25* growth 9 11 13 13 13 14 14 14 14 15

Total COGS 375 480 541 551 562 574 585 597 609 621

Gross Profit 376.4 481.6 542.2 553.1 564.1 575.4 586.9 598.6 610.6 622.8

Net Income 33.3 41.3 30.8 35.7 39.7 46.9 49.9 52.5 54.8 56.9

Adjusted Net Income 18.3 22.7 17.0 19.6 21.8 25.8 27.4 28.9 30.1 31.3

Net Operating CF 23.6 32.1 24.5 25.7 26.7 29.7 30.5 31.3 32.1 32.9

NPV (27.5)

82

Appendix 9 – Salt Silo Custom Fabrication

Incremental Income Statement ($'000) - Salt Silos Proposal

Audit Trail 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Revenue contract value/30*Quantity 1736 2314 1736 1475 1549 1626 1708 1793 1883 1977

COGS 0.78*revenue 1354 1805 1354 1151 1208 1269 1332 1399 1469 1542

Gross Profit 0.22*Revenue 382 509 382 325 341 358 376 394 414 435

Administrative Wage as specified by case 48 48 48 48 48 48 48 48 48 48

Sales Wage as specified by case 0 0 36 48 48 48 48 48 48 48

Sales Commission 0.01*Revenue 0 0 0 15 15 16 17 18 19 20

Engineering Fees % as specified*rev 139 58 43 74 77 81 85 90 94 99

Amortization-Equipment 30% 48 82 57 40 28 20 14 10 7 5

Amortization-Computer 55% 1 1 1 0 0 0 0 0 0 0

Amortization-Lease 5 year straight line 15 15 15 15 15 0 0 0 0 0

Total Expenses 251 204 200 240 232 213 212 213 216 219

Income Before Tax Gross Profit - Total Expenses 131 305 182 85 109 145 163 181 199 216

Income Tax 25%/Loss Carry Fwd Income before tax * 0.25 33 76 45 21 27 36 41 45 50 54

Net Income Income before tax - tax 98 229 136 64 82 108 123 136 149 162


PV Factor (10%) 0.91 0.83 0.75 0.68 0.62 0.56 0.51 0.47 0.42 0.39


Tax Shield-Equip 57.3 Tax Shield - Comp 0.6 IRR 58%

Capital Outlay Equip/Comp/Lease Improv 398 PI 2.84 NPV over 10 years 733 Payback 1.72

Appendix 9 Continued – Sensitivity Analysis 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Revenue – 6075K NPV = 804 1823 2430 1823 1549 1627 1708 1793 1883 1977 2076

Revenue - 5850K NPV = 749 1755 2340 1755 1492 1566 1645 1727 1813 1904 1999

Revenue – 5300K NPV = 614 1590 2120 1590 1352 1419 1490 1565 1643 1725 1811

Revenue - 0% (year 4-10) NPV = (6) 1736 2314 1736 0 0 0 0 0 0 0

Revenue - 25% (year 4-10) NPV = 179 1736 2314 1736 369 387 407 427 448 471 494

Revenue - 50% (year 4-10) NPV = 363 1736 2314 1736 738 774 813 854 897 941 988

Revenue - 75% (year 4-10) NPV = 548 1736 2314 1736 1106 1162 1220 1281 1345 1412 1483

83

Appendix 10 – Hopper Bottom Cones

Incremental Income Statement ($'000) - Hopper Bottom Cones

SK-Retail- No OC Audit Trail 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Revenue - 18 ft units x retail price 1172 1243 1318 1331 1344 1358 1371 1385 1399 1413

Revenue - 21 ft units x retail price 531 563 597 603 609 616 622 628 634 641

Total Revenue 1703 1806 1915 1935 1954 1973 1993 2013 2033 2054

Direct Material-18 ft units x cost 441 473 506 516 527 537 548 559 570 582

Direct Material-21 ft units x cost 238 255 273 278 284 290 296 301 307 314

Direct Labour - 18 ft units x labour cost 125 134 144 147 150 153 156 159 162 165

Direct Labour - 21 ft units x labour cost 55 59 63 64 66 67 68 70 71 72

Allocated Overhead Labour hours*42*growth 236 253 271 276 282 287 293 299 305 311

COGS material + labour + OH 1096 1174 1257 1282 1308 1334 1360 1388 1415 1444

Gross Profit Revenue - COGS 607 633 659 653 646 640 633 625 618 610

Plant Workers Wage given, growing 2% per annum 62 64 65 66 68 69 70 72 73 75

Sales Staff Salary 2 sales staff 67 68 69 71 72 74 75 76 78 80

Sales Staff commission 5% of retail and 2% of wholesale 85 90 96 97 98 99 100 101 102 103

Engineering expenses given, growing 2% per annum 2 2 2 2 2 2 2 2 2 2

Repair & maintenance given, growing 2% per annum 5 5 5 5 5 6 6 6 6 6

Processing supplies 3.45% of revenue 59 62 66 67 67 68 69 69 70 71

Marketing 1% of revenue 17 18 19 19 20 20 20 20 20 21

Amortization Expenses 30% amortization 150 105 74 51 36 25 18 12 9 6

Total Expenses sum of all expenses 447 414 396 379 368 362 359 359 360 363

Income Before Tax Gross prof - Expenses - Opp Cost 160 218 263 274 278 278 274 267 258 247

Income Tax 25% 25% x Net Income before Tax 40 55 66 68 70 69 68 67 64 62

Net Income 120 163 196 205 208 208 205 200 193 185


PV Factor (10%) 0.91 0.83 0.75 0.68 0.62 0.56 0.51 0.47 0.42 0.39


Total Capital Costs Equipment+Training+Enginering Fees+Market Survey 605.0 IRR 41%

Tax Shield 89.5 PI 2.62

NPV over 10 years 987.5 Payback 2.25

84

Appendix 10 Continued – Sensitivity Analysis

AB- Fully Retail - No Opportunity Cost 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Total Revenue 1703 1806 1915 1935 1954 1973 1993 2013 2033 2054

Gross Profit 540 556 578 570 562 554 545 536 527 517

Total Expenses 460 428 410 393 383 377 374 374 376 379

Net Income 111 151 185 193 197 196 192 187 180 172

NPV 525 IRR 26% PI 1.87 Payback 3.15

SK-Blended - No Opportunity Cost 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Total Revenue 1352 1448 1551 1582 1613 1646 1678 1712 1746 1781

COGS 1096 1174 1257 1282 1308 1334 1360 1388 1415 1444

Gross Profit 256 274 294 300 306 312 318 324 331 337

Total Expenses 356 321 299 281 271 265 262 261 263 265

Net Income (75) (35) (4) 14 26 35 42 47 51 54

NPV (30)

AB-Blended - No Opportunity Cost 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Total Revenue 1352 1448 1551 1582 1613 1646 1678 1712 1746 1781

Gross Profit 188 198 213 217 222 226 231 235 240 245

Total Expenses 290 353 324 302 288 280 276 275 275 278

Net Income (102) (155) (111) (85) (67) (54) (45) (40) (36) (33)

NPV (541)

AB – Blended - Opportunity Cost 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Opportunity Cost 311 311 311 311 311 311 311 311 311 311

Net Income (112) (72) (38) (29) (26) (26) (30) (35) (42) (49)

NPV (1975)

AB – Fully Retail - Opportunity Cost 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Net Income (122) (82) (48) (40) (37) (38) (41) (46) (53) (62)

NPV (909)

SK-Blended - Opportunity Cost 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Net Income (308) (268) (237) (220) (207) (198) (191) (186) (182) (179)

NPV (1564)

SK- Fully Retail - Opportunity Cost 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Net Income (336) (388) (345) (319) (300) (288) (279) (273) (269) (266)

NPV (464)

85

Appendix 11 – Sales Office

Incremental Income Statement ($'000) - AB Sales Office

Audit Trail 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Revenue

35%*2014 Sales*Expected Growth 444 600 690 794 913 958 1006 1056 1109 1165

COGS Revenue*0.8 356 480 552 635 730 767 805 845 887 932

Gross Profit Revenue - COGS 89 120 138 159 183 192 201 211 222 233

Salary expenses

# Sales Staff*12 *monthly salary*growth 0 37 38 39 40 41 41 42 43 44

Commissions Revenue*0.05 22 30 35 40 46 48 50 53 55 58

Lease Monthly Rent*12*Growth 30 32 33 35 36 38 40 42 44 47

Utilities Monthly Rate *12*Growth 6 6 6 6 6 7 7 7 7 7

Telephone # Sales Staff * 12*monthly rate*growth

0 1 1 1 1 1 1 1 1 1

Insurance Monthly Rate *12*Growth 1 1 1 1 1 1 1 1 1 1

Ad & Marketing Revenue*% of Sales 22 24 7 8 9 10 10 11 11 12

Travel Monthly Rate *12*Growth 48 49 50 51 52 53 54 55 56 57

Savings in Travel specified in case (140) (140) (140) (140) (140) (140) (140) (140) (140) (140)

Total Expenses sum of all expenses (10) 41 31 41 52 59 65 73 80 88

Initial Expenses* 55

Operating Profit GP - Total Expenses 44 79 107 118 130 133 136 139 142 145

Tax 25% 25% * Operating Profit 11 20 27 29 33 33 34 35 35 36

Net Income Operating Profit - Taxes 33 60 80 88 98 100 102 104 106 109


PV 10% Factor

0.91 0.83

0.75 0.68

0.62

0.56

0.51 0.47

0.42

0.39

PV-Net CF 30 49 60 60 61 56 52 49 45 42

Total PV of CF 505

Assumptions

One-time initial expenses related to sales office occurred in 2015 Sensitivity analysis assumption: Loss of 2 out of 6 sales staff in Alberta will cause proportional decreases to Alberta Sales in 2016

50% of which will be recovered in 2017 and the remaining 50% will be recovered in 2018

86

Appendix 11 Continued – Sensitivity Analysis Audit Trail 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Revenue 296 500 690 794 913 958 1006 1056 1109 1165

COGS 256 400 552 635 730 767 805 845 887 932

Gross Profit 41 100 138 159 183 192 201 211 222 233

Net Income (3) 45 80 88 98 100 102 104 106 109

Net Operating CF (3) 45 80 88 98 100 102 104 106 109

NPV 459

Appendix 12 – New Site Purchase Incremental Income Statement ($'000) - New Site Purchase in Balgonie, Saskatchewan

Audit Trail 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Property Tax Given 15 15 15 15 15 15 15 15 15 15

Utility cost 4000/month x 12 months 48 48 48 48 48 48 48 48 48 48

Insurance costs Given 32 32 32 32 32 32 32 32 32 32

Additional Freight Given 35 35 35 35 35 35 35 35 35 35

Employees incentive 4000 x 12 48 48 48 48 48 0 0 0 0 0

Amortization- Building 20% x book value 65 117 94 75 60 48 38 31 25 20

Amortization- Equip 30% x book value 38 64 45 31 22 15 11 8 5 4

Total Expenses sum of all the above 178 178 178 178 178 130 130 130 130 130

Rent Savings - Factories

Annual Rent for 2 factories 312 343 378 385 393 401 409 417 425 434

Rent Savings - Yard Annual Rent for Storage Yard 19 19 19 20 20 21 21 22 22 22

Utility Savings 2500*12*2 60 60 60 60 60 60 60 60 60 60

Operating Cost Savings (2.5*15000+1.75*10000)*growth 55 61 67 68 69 71 72 73 75 76

Insurance Savings Annual rate of 7000 7 7 7 7 7 7 7 7 7 7

Total Savings sum of all the above 453 490 531 540 549 559 569 579 589 600

Shutdown Opp. Cost 4 wks of gross margin in baseline 162

Net Cash Flow 187 415 403 378 360 385 378 375 374 376

PV of CF 170 343 302 258 224 217 194 175 159 145

87

Appendix 12 Continued Investment Site Cost/legal

fees/renovations/ equipment/lease penalty

1075 IRR 34% Sensitivity Analysis:

Purchase Price - Best

245.0

PV of Tax Shield - Office Equipment

20% 103.4 PI 2.17 Legal Fees

7.4

PV of Tax Shield - Plant 30% 44.7 Payback 3.19 Shutdown - Best 121.7

NPV over 10 years 1184 NPV 1267.5

PI 2.26

Assumptions: Site purchased in Jun 2015; Ready to use in Jan 2016; Purchase Price - Worst 375.0 Shutdown Period Price Legal $ Legal Fees 11.3

Average 4 weeks 310 9.3 Shutdown - Worst 243.5

Worst case 6 weeks 375 11.3 NPV 1023

Best case 3 weeks 245 7.4 PI 1.90

88

Appendix 13 – Action Plan (Cost quoted in 000’s)

Task Who Timing $

Internal communication on the sales office acquisition Wall May 15 0

Hire sales staff to supplement AB sales office Wall May-Jun 15 2

Signing the lease for the sales office Harding May-15 2.5

Moving and operationalizing sales office. Moving, furniture, equipment

Wall Jun-Jul 15 10

Negotiate property price and purchasing property in Balgonie

Harding May-Jun 15 319

Communicate with employees about the move to Balgonie

Harding, Toth

Jun 15 0

Start renovation and upgrades of the Balgonie building

Toth Jun-Dec 15 450

Start designing compensation packages for travel Boyce, Toth

Oct-Nov 15 0

Designing different shift schedules to compensate for longer commute

Toth, Raj

Nov-Dec 15 0

Give notice to end leases in all current locations for 2016

Toth Oct-15 55

Re-designing supply routes and delivery routes based on new location

Wall, Raj

Oct-Nov 15 0

Disassembling all the factory lines, transport them to new site, re-assemble

Toth, Raj

Jan-16 180

Prepare response for RFP to bid on salt silos Harding Jul-15 0

Hire additional welders to prepare for the contract New HR, Raj

Dec-15 0

Acquire necessary equipment and setup production line

Toth Jan-16 323

Leasehold improvement on the new facility to product salt silos

Raj, Toth

Feb-Mar 16 75

Operationalize salt silo production in new facility Raj, Toth

Mar-16 0

Computerized ERP system by NetSuite Boyce May-Jun 15 3

NetSuite Small Business Solutions CRM44 Wall June-15 3

Foreign worker onboarding program Raj, Toth

Nov-Dec 15 10

HR Certification course for Admin Toth Jul-15 5

New Payroll system45 Boyce Jun-15 .4

Establishing PS team Wall Jul-15 5

Environmental damage preservation Harding Jun-15 5

44 NetSuite CRM, “NetSuite Solutions,” NetSuite Corporation, accessed on May 23, 2015,

http://www.netsuite.com/ca/small-business-solutions/pricing/sales/ 45 Intuit Enhanced-Payroll, “QuickBooks Payroll,” Intuit Inc, accessed on May 23, 2015,

http://payroll.intuit.com/payroll-services/enhanced-payroll/

89

Appendix 14 – TRU Proforma Balanced Sheet

90

Appendix 15 – TRU Proforma Income Statement TanksRUs Manufacturing Inc.

Pro Forma Income Statement For the Years Ending Dec 31

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Revenue 8466 11070 12911 13004 12872 13090 13239 13395 13558 13727 13905 Freight 46 48 51 53 56 59 62 65 68 71 75

Total Revenues 8512 11118 12961 13057 12928 13149 13301 13459 13625 13799 13980

Cost of goods sold 6622 8465 9727 9564 9565 9880 10124 10376 10637 10908 11188 Freight out 100 100 100 100 100 100 100 100 100 100 100

Total cost of goods sold 6722 8565 9826 9663 9665 9979 10223 10476 10737 11007 11288

Gross margin 1790 2553 3135 3394 3263 3170 3078 2984 2888 2791 2692

Depreciation 509 440 450 333 287 215 139 102 75 55 25 Engineering fees/ULC/ISO 38 178 98 84 115 120 124 129 134 140 145 Indirect plant wages and benefits 715 824 1053 1181 1228 1249 1223 1245 1268 1291 1314 Processing supplies - general 368 375 383 391 398 406 415 423 431 440 449 Rework 53 54 55 57 58 59 60 61 62 64 65 Sale of scrap (11) (11) (11) (11) (11) (11) (11) (11) (11) (11) (11) Plant equipment costs 222 227 231 236 241 246 250 255 261 266 271 Building costs 538 144 252 229 233 237 241 245 250 254 259 Other production costs 80 242 103 99 100 101 103 104 105 107 108 Allocated overhead (2289) (2305) (2305) (2326) (2326) (2326) (2326) (2326) (2326) (2326) (2326)

Total production overhead 223 169 309 272 323 296 218 228 249 279 299

Admin wages and benefits 677 737 765 784 803 823 840 858 876 894 913 Advertising and marketing 32 60 63 46 48 50 51 52 53 55 56 Office costs 130 179 175 179 184 188 193 198 203 208 213 Travel 160 86 75 80 84 89 93 98 103 108 112 Vehicle expense 72 73 75 76 78 79 81 82 84 86 88

Total general & admin Exp 1020 1136 1153 1165 1196 1229 1258 1288 1319 1350 1382

Bonus expense 36 41 53 59 61 62 61 62 63 65 66 Depreciation 28 28 27 27 26 26 25 25 25 25 1 Interest expense 74 79 81 77 71 66 61 56 55 53 52 Total other expenses 117 148 161 163 158 154 148 143 143 143 118

Total exp before OH allocation 1112 1453 1623 1600 1677 1679 1624 1659 1711 1772 1800

Leasehold write-off 239 Pre-tax income 439 1100 1512 1794 1586 1490 1454 1325 1178 1019 892 Tax @ 25% 110 275 378 448 396 373 363 331 294 255 223

Net Income 330 825 1134 1345 1189 1118 1090 994 883 765 669

91

Appendix 16 – TRU Cash Flow Proforma

TanksRUs Manufacturing Inc.

Pro Forma Cash Flow Statement

For the Years Ending Dec 31

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Operating activities

Net income 330 825 1134 1345 1189 1118 1090 994 883 765 669

Depreciation included in production overhead 509 440 450 333 287 215 139 102 75 55 25

Depreciation 28 28 27 27 26 26 25 25 25 25 1

Changes in Non-cash Working Capital:

Accounts Receivable (296) (274) (411) (1) 76 24 27 23 13 4 (6)

Inventory (148) (140) (208) (1) 38 12 13 12 6 2 (3)

Prepaid and other (55) (7) (34) 0 6 5 4 3 1 0 (2) Trade accounts payable 11 173 119 (15) 0 30 23 24 25 25 26 Due to government agencies 0 75 53 3 (4) 6 4 5 5 5 5 Other liabilities and accrued expenses 4 24 3 2 6 7 6 6 6 6 7 Current portion of long-term debt and venture capital 0 0 0 0 0 0 0 0 0 (23) (60) Income taxes paid (15) 106 116 84 (50) (23) (9) (31) (36) (39) (35)

Cash Flow from Operating Activities 366 1250 1249 1778 1576 1420 1323 1162 1003 825 627

Investing activities

Investment in PP&E (675) (614) (62) (51) (80) (63) (52) (43) (37) (33) 9

Cash Flow from Investing Activities (675) (614) (62) (51) (80) (63) (52) (43) (37) (33) 9

Financing activities

Repayment of bank loan (19) (19) (19) (19) (19) (19) (19) (19) (19) (19) (12) Repayment of Venture capital (64) (64) (64) (64) (64) (64) (64) (64) (64) (41) 0

Issue of share capital for cash 800

Payment of dividends (166) (502) 680 807 714 671 654 596 530 459 402

Cash Flow from Financing Activities 551 (585) 598 724 631 588 571 513 447 399 390

Net increase in cash and cash equivalents 242 51 1785 2451 2126 1944 1843 1632 1412 1190 1026

Cash & cash equivalents at start of the period 667 909 961 2745 5197 7323 9267 11110 12741 14154 15344

Cash & cash equivalents at end of the period 909 961 2745 5197 7323 9267 11110 12741 14154 15344 16370

92

Appendix 17 – TRU Balanced Score Card

Category Objectives Measure Target Initiatives

Financial

Profitability Net income 800k (2017)

Salt silo initiative and cost reduction efforts

Growth Revenue growth year by year 15%

Sales office, better customer relationship

Production Efficiency

Cost of goods sold as a % of revenue <75%

Better time management and material management

Operating Efficiency

Operating expenses as a % of revenue 10%

Consolidation of operations into one plant

Customer

Market Share Number of new customer added 3

Sales office, diversification into salt silo

Satisfaction % of customers that would recommend 80%

Professional services team, service portfolio

Quality

% of customer complaints / incidents <5%

Quality performance program

Internal Process

Quality Control % defects discovered <10%

Quality performance program

Cost Control % of COGS <75% Consolidation, computer inventory system

Supply and Logistics

% of material secured on time

>90% Diversify supplier, build relationships

Process Management

Contribution margin / labour hour improve 10%

Development of best practices and material management

Learning & Growth

Skill Development

% of junior employees benefited 4

Journeyman training program, foreign workers

New Employee Onboard

% additional employees added 8

Dedicate an administration staff to hiring

Employee Retention

% of employee attrition <2%

Compensation package, training package

Communication Number of townhalls held 2 / year

Change committee, town-halls

93

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TanksRus-Final-Submission-ENV9600

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