smeda furniture showroom

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Pre-Feasibility Study FURNITURE SHOWROOM Small and Medium Enterprise Development Authority Government of Pakistan www.smeda.org.pk HEAD OFFICE 6 th Floor LDA Plaza Egerton Road, Lahore Tel (042)111 111 456, Fax: (042) 36304926-7 [email protected] REGIONAL OFFICE PUNJAB REGIONAL OFFICE SINDH REGIONAL OFFICE KHYBER PAKTUNKHWA REGIONAL OFFICE BALOCHISTAN 8 th Floor LDA Plaza, Egerton Road, Lahore. Tel: (042) 111 111 456, Fax: (042) 36370474 [email protected] 5TH Floor, Bahria Complex II, M.T. Khan Road, Karachi. Tel: (021) 111-111-456 Fax: (021) 35610572 [email protected] Ground Floor State Life Building The Mall, Peshawar. Tel: (091)111 111 456, 9213046-7 Fax: (091) 286908 [email protected] Bungalow No. 15-A Chamn Housing Scheme Airport Road, Quetta. Tel: (081) 2831623, 2831702 Fax: (081) 2831922 [email protected] January, 2011

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Page 1: SMEDA Furniture Showroom

Pre-Feasibility Study

FFUURRNNIITTUURREE SSHHOOWWRROOOOMM

Small and Medium Enterprise Development Authority

Government of Pakistan www.smeda.org.pk

HEAD OFFICE 6th Floor LDA Plaza Egerton Road, Lahore

Tel (042)111 111 456, Fax: (042) 36304926-7

[email protected]

REGIONAL OFFICE PUNJAB

REGIONAL OFFICE SINDH

REGIONAL OFFICE KHYBER PAKTUNKHWA

REGIONAL OFFICE BALOCHISTAN

8th Floor LDA Plaza,

Egerton Road, Lahore.

Tel: (042) 111 111 456, Fax: (042) 36370474

[email protected]

5TH Floor, Bahria Complex II,

M.T. Khan Road, Karachi.

Tel: (021) 111-111-456 Fax: (021) 35610572

[email protected]

Ground Floor

State Life Building The Mall, Peshawar.

Tel: (091)111 111 456, 9213046-7 Fax: (091) 286908

[email protected]

Bungalow No. 15-A Chamn

Housing Scheme Airport Road, Quetta.

Tel: (081) 2831623, 2831702 Fax: (081) 2831922

[email protected]

January, 2011

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1 EXECUTIVE SUMMARY................................................................................................................. 5 2 INTRODUCTION TO SMEDA ........................................................................................................ 6 3 PURPOSE OF THE DOCUMENT ................................................................................................... 6 4 CRITICAL SUCCESS FACTORS IN DECISION MAKING FOR INVESTMENT .................. 7

4.1 SWOT ANALYSIS ..................................................................................................................... 7 4.1.1 Strengths ................................................................................................................................. 7 4.1.2 Weaknesses ............................................................................................................................. 7 4.1.3 Opportunities .......................................................................................................................... 7 4.1.4 Threats.................................................................................................................................... 8

4.2 KEY SUCCESS FACTORS........................................................................................................ 8 4.2.1 Quality of raw material .......................................................................................................... 8 4.2.2 Attractive Design and Quality Finishing ................................................................................ 8 4.2.3 Sales promotion ...................................................................................................................... 9 4.2.4 Other Success Factors ............................................................................................................ 9

5 PROJECT PROFILE ......................................................................................................................... 9 5.1 OPPORTUNITY RATIONALE.................................................................................................. 9 5.2 PROJECT BRIEF...................................................................................................................... 10 5.3 TARGET MARKET.................................................................................................................. 10 5.4 MARKET ENTRY TIME ......................................................................................................... 10 5.5 PROPOSED BUSINESS LEGAL STATUS ............................................................................. 10 5.6 PROJECT CAPACITY AND RATIONALE ............................................................................ 10 5.7 PROPOSED LOCATION ......................................................................................................... 10 5.8 PROJECT INVESTMENT........................................................................................................ 11

6 INDUSTRY STRUCTURE .............................................................................................................. 11 6.1 FURNITURE CLUSTERS IN PAKISTAN .............................................................................. 12

6.1.1 Gujrat ................................................................................................................................... 12 6.1.2 Lahore................................................................................................................................... 12 6.1.3 Chiniot .................................................................................................................................. 12

7 WORLD IMPORTS AND EXPORTS............................................................................................ 13 8 MARKET INFORMATION ABOUT FURNITURE .................................................................... 14

8.1 REQUIREMENT OF WOODEN FURNITURE....................................................................... 14 9 PROJECT MARKETING STRATEGY......................................................................................... 15

9.1 MARKETING STRATEGY ..................................................................................................... 15 9.2 TRENDS IN FURNITURE STYLE .......................................................................................... 15 9.3 TRENDS IN MATERIALS, COLOURS AND SHAPES.......................................................... 15

9.3.1 Materials commonly used ..................................................................................................... 16 10 PROPOSED PRODUCT MIX......................................................................................................... 16 11 HUMAN RESOURCE REQUIREMENT ...................................................................................... 17

11.1 HUMAN RESOURCE REQUIREMENTS .......................................................................................... 17 12 OFFICE EQUIPMENT.................................................................................................................... 18 13 LAND & BUILDING REQUIREMENT ........................................................................................ 18 14 KEY ASSUMPTIONS ...................................................................................................................... 19

14.1 PROJECT ASSUMPTIONS ............................................................................................................. 19 14.2 OPERATING ASSUMPTIONS......................................................................................................... 19 14.3 DEPRECIATION RATE ASSUMPTIONS .......................................................................................... 19

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14.4 CASH FLOW ASSUMPTIONS ........................................................................................................ 19 14.5 MISCELLANEOUS ASSUMPTIONS ................................................................................................ 20 14.6 EXPENSE ASSUMPTIONS............................................................................................................. 20 14.7 REVENUE ASSUMPTIONS ............................................................................................................ 20 14.8 REVENUE ASSUMPTIONS - PRODUCT MIX .................................................................................. 20 14.9 REVENUE ASSUMPTIONS - SALES PRICE ..................................................................................... 21 14.10 COST OF SALES .......................................................................................................................... 21

15 FINANCIAL STATEMENTS.......................................................................................................... 22 15.1 PROJECT COST ........................................................................................................................... 22 15.2 INCOME STATEMENT.................................................................................................................. 23 15.3 BALANCE SHEET ........................................................................................................................ 24 15.4 CASH FLOW STATEMENT ........................................................................................................... 25

16 ANNEXURE...................................................................................................................................... 26 16.1 MAJOR FURNITURE SUPPLIERS AND MANUFACTURERS ............................................................. 26 16.2 TAX DEDUCTION INCOME SLABS................................................................................................ 26

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DISCLAIMER

The purpose and scope of this information memorandum is to introduce the subject

matter and provide a general idea and information on the said area. All the material

included in this document is based on data/information gathered from various sources and

is based on certain assumptions. Although, due care and diligence has been taken to

compile this document, the contained information may vary due to any change in any of

the concerned factors, and the actual results may differ substantially from the presented

information. SMEDA does not assume any liability for any financial or other loss

resulting from this memorandum in consequence of undertaking this activity. The

prospective user of this memorandum is encouraged to carry out additional diligence and

gather any information he/she feels necessary for making an informed decision.

For more information on services offered by SMEDA, please contact our website: www.smeda.org.pk

DOCUMENT CONTROL

Document No. PREF-99

Revision 2

Prepared by SMEDA-Punjab

Issue Date June 2006

Revision Date January, 2011

Issued by Library Officer

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11 EEXXEECCUUTTIIVVEE SSUUMMMMAARRYY The project involves establishing a Furniture Showroom at a central location of any big city of Pakistan. The showroom will cater to the needs of the domestic market, selling quality wooden furniture for household and office use. The furniture will be outsourced from local manufacturers in Gujrat and Chiniot. The showroom will provide its own designs as well as take orders for customized furniture. The outlet will offer a product mix of household furniture including bedroom sets, dining room, common room and drawing room furniture. Additionally office furniture will also be available in the showroom.

Pakistan is one of the oldest furniture manufacturing industries. The furniture industry is divided into two main types: cottage and small scale industries. The industry is aiming at developing a system designed to incorporate its tradition with modern functional demands, coupled with a quality of the material and aesthetic values. The medium sized and the small sized units have their showrooms and some micro sized manufacturers don’t have their own showrooms, so they are dependent on outlets set up in cities like Lahore, Sialkot, Gujranwala, Rawalpindi, Islamabad, Peshawar, Karachi, Quetta etc. In Lahore there are many clusters of furniture showrooms in central locations like Fortress Stadium, Gulberg, DHA, Allama Iqbal Town, Ferozepur Road and Multan Road.

The total project cost for setting up the showroom is estimated at Rs. 5.571 million. The project is financed through 50% debt and 50% equity. The project NPV is around Rs. 2.121 million, with an IRR of 29% and payback period of 3.78 years. The legal business status of this project is proposed as ‘Sole Proprietorship’.

The showroom will be open for 11 hours everyday. Given the business type a fixed sales capacity can not be determined. It is assumed that 525 sets of furniture are sold in the first year from among the product mix defined. The projected sales are increasing at a rate of 5% each year. The projected sale figures given in the project are only an approximation and actual sales may vary significantly depending on how well the showroom caters to the market requirement and how strong its marketing strategy is.

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22

33

IINNTTRROODDUUCCTTIIOONN TTOO SSMMEEDDAA The Small and Medium Enterprises Development Authority (SMEDA) was established with the objective to provide fresh impetus to the economy through the launch of an aggressive SME support program.

Since its inception in October 1998, SMEDA adopted a sectoral SME development approach. A few priority sectors were selected on the criterion of SME presence. In depth research was conducted and comprehensive development plans were formulated after identification of impediments and retardants. The all-encompassing sectoral development strategy involved recommending changes in the regulatory environment by taking into consideration other important aspects including finance, marketing, technology and human resource development.

SMEDA has so far successfully formulated strategies for industries such as horticulture, including export of fruits and vegetables, marble and granite, gems and jewellery, marine fisheries, leather and footwear, textiles, surgical instruments, transport, dairy etc. Whereas the task of SME development at a broader scale still requires more coverage and enhanced reach in terms of SMEDA’s areas of operation.

Along with the sectoral focus a broad spectrum of business development services is also offered to the SMEs by SMEDA. These services include identification of viable business opportunities for potential SME investors. In order to facilitate these investors, SMEDA provides business guidance through its help desk services as well as development of project specific documents. These documents consist of information required to make well-researched investment decisions. Pre-feasibility studies and business plan development are some of the services provided to enhance the capacity of individual SMEs to exploit viable business opportunities in a better way.

This document is in the continuation of this effort to enable potential investors to make well-informed investment decisions.

PPUURRPPOOSSEE OOFF TTHHEE DDOOCCUUMMEENNTT The objective of this proposed Pre-feasibility is primarily to facilitate potential entrepreneurs with the investment information and provide an overview about the "Furniture Show Room Business". The project pre-feasibility may form the basis of an important investment decision and in order to serve this objective, the document/study covers various aspects of project concept development, start-up, and marketing, finance and business management. The document also provides sectoral information and international scenario, which have some bearing on the project itself.

The purpose of this document is to facilitate potential investors of the Furniture Showroom business by providing them a macro and micro view of the business with the hope that the information provided herein will aid the potential investors in crucial investment decisions.

This particular Pre-feasibility is regarding setting up "Furniture Show Room". Our report is based on the information obtained by us from industry sources as well as our discussions with businessmen. For financial model, since the forecast/projections relate to

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the future periods, actual results are likely to differ because of the events and circumstances that don’t occur as frequently as expected.

44 CCRRIITTIICCAALL SSUUCCCCEESSSS FFAACCTTOORRSS IINN DDEECCIISSIIOONN MMAAKKIINNGG FFOORR IINNVVEESSTTMMEENNTT 44..11 SSWWOOTT AANNAALLYYSSIISS Wood is the main raw material used in furniture making and the entire finished product depends on quality of wood. The information and technical know how about the quality of wood and use of seasoned (dry) wood plays a vital role in the manufacturing of good quality furniture, which will ultimately reflect on the reputation of the furniture show room. Strong competition exists in the international and domestic market. Manufacturing and sale of high quality trendy designs and good marketing is essential to get a permanent place in the market. Real wood furniture is the most popular furniture in existence; it's been around for hundreds of years.

Before making the decision, whether to invest in setting up the Furniture Show Room or not, one should carefully analyze the associated risk factors. A SWOT analysis can help in analyzing these factors, which can play an important role in making the decision.

44..11..11 SSttrreennggtthhss

1. Availability of high quality furniture to customers

2. Variety of traditional and modern designs of locally manufactured furniture will be available in the showroom.

3. A number of suppliers available in the local market, for instance the Chiniot and Gujrat furniture market.

4. Profit margins can be as high as 100%

5. Central location of the showroom in a big city, easily accessible to the target market.

6. The showroom is proposed to be open 11 hours a day.

7. A product mix that includes furniture for both household and official use.

44..11..22 WWeeaakknneesssseess

1. A number of competitors in the market.

2. Easy market entry

3. Seasonal sector (especially household furniture in the wedding season – November to March).

4. Heavy investment in the working capital.

5. Very strict quality check required.

6. Dependency on the supplier for timely delivery of orders.

44..11..33 OOppppoorrttuunniittiieess

1. High quality furniture being produced locally at competitive rates and in large quantities.

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2. The life style of the people is improving and they are getting more quality conscious, thus preference for the high quality products is increasing.

3. With an overall increase in income levels people are willing to spend more on house renovation and decoration.

4. Continuous increase in construction and renovation of houses and offices create new opportunities.

5. Market share can be acquired from un-organized sector through high quality product and promotional activity.

44..11..44 TThhrreeaattss

1. Lack of tree plantation resulted in lack of raw material (wood.)

2. The prices of all raw materials such as chipboard, timber, foam, polish chemical materials, colour paints and hard ware have increased

3. Heavy imports of furniture particularly from China

4. Local furniture manufacturers face high costs and poor output due to obsolete machinery, inadequate tools and manual labour.

5. Furniture trends and designs change rapidly.

6. Several established competitors enjoy a good market share.

44..22 KKEEYY SSUUCCCCEESSSS FFAACCTTOORRSS

44..22..11 QQuuaalliittyy ooff rraaww mmaatteerriiaall

The furniture industry in Pakistan is dependent on the quality of the raw material available. The high quality wood is scarce in Pakistan and customer complaints arise due to the use of cheap and low quality wood by the manufacturers. It has to be ensured that furniture displayed in the showroom and manufactured on orders must be of high quality raw material.

44..22..22 AAttttrraaccttiivvee DDeessiiggnn aanndd QQuuaalliittyy FFiinniisshhiinngg

The life style of the people is improving and they are getting more quality conscious. Contemporary and chic designs are better liked by people these days. Special attention should be given to present latest designs according to the current market demands and requirements.

Tastefully designed and knockdown furniture items, made of superior quality wood and light weighted are more suitable for sale purposes.

New designs and styles with durability can build brand equity for the business. As there is high competition in market, creation of up-to-date designs and styles, and introducing new trends is vital.

As this proposed showroom business is expected to target middle to upper middle class, the furniture should be able to fulfil their special requirements. It is therefore more important that furniture should be aiming to cater the traditions with modern functional demands, coupled with quality of the material and aesthetic sense. It is of utmost

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importance that furniture should be durable and of the latest style and fashion at an economical cost so as to attract the relevant class of the society.

44..22..33 SSaalleess pprroommoottiioonn

Another critical success factor of this proposed pre-feasibility is the Marketing and Promotion of the Furniture. Sales promotion activity is necessary for market penetration.

This involves dedication and hard work from the marketing personnel and advertisement through print media along with the use of other marketing techniques.

44..22..44 OOtthheerr SSuucccceessss FFaaccttoorrss

1. Advance orders for sale can ensure the success of the business.

2. Assurance to customers that furniture is made of seasoned (dry) wood. Properly seasoned (dry) wood guarantees high quality as it minimizes deformation of wood due to dampness.

3. New designs and styles can build brand equity for business. As there is high competition in market, to make the project commercially viable, creation of new designs ands styles and setting new trends is vital

4. The location of the showroom is an important factor for success. The showroom should be located in heavily populated or developed cities and its location within the city should be decided keeping the target market in mind.

5. Responsiveness to customers' demands and requirements is very important to stay in market and retain market share.

6. Better customer service and after sale service to promote business goodwill.

7. Competitive prices should be offered.

55 PPRROOJJEECCTT PPRROOFFIILLEE 55..11 OOPPPPOORRTTUUNNIITTYY RRAATTIIOONNAALLEE Furniture Showroom is a viable business if done properly on commercial basis. With the increase in the development of new housing schemes, increased demand of wooden furniture can be anticipated. Furniture is also given as part of the dowry which forms the major portion of sales of furniture in Pakistan. The demand for household furniture increases substantially in winter and spring season which is the wedding season in Pakistan. Domestic/office requirements and trend of dowry in the form of furniture considerably increases the need for quality furniture.

The demand for household furniture and accessories directly correlate with new residential construction, and office furniture follows trends in non-residential construction. A growing segment is the renovation, maintenance and improvement sector.

Some furniture manufacturers do not have their own showrooms and are dependant upon other sources for furniture sales. The medium sized and the small sized units have their showrooms. The micro sized manufacturers don’t have their own showrooms, so they are dependent on the other categories for their furniture sales. Around 10% of the total furniture manufactured in Gujrat is sold within the city. The rest 90% of the furniture is

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sold in the other cities like Lahore, Sialkot, Gujranwala, Rawalpindi, Islamabad, Peshawar, Karachi, Quetta etc.

55..22 PPRROOJJEECCTT BBRRIIEEFF The proposed project is for setting up FURNITURE SHOWROOM. This project is only concerned with “Furniture Showroom” and does not include manufacturing facility. The furniture is proposed to be outsourced from various local manufacturers. The showroom will provide its own designs as well as customized designs to its customers.

The products covered in this pre-feasibility are domestic or household furniture and office furniture in finished form. It specifically excludes the contract sector, which includes furniture for civil aviation, hospitals, schools, and other similar purposes. Antique, second-hand furniture and garden furniture has been excluded as well.

55..33 TTAARRGGEETT MMAARRKKEETT The target market proposed for this project is middle to upper middle class. Nowadays the demand is for quality furniture at a reasonable cost. Given the current situation of the market, the high income group also searches for good bargains. Therefore, the focus of this showroom will be to present good quality furniture at an economical price range.

55..44 MMAARRKKEETT EENNTTRRYY TTIIMMEE Though the demand for wooden furniture in domestic market exists throughout the year (especially for office furniture & renovation requirements), but it significantly increases during the period of October to March because of the wedding season. The demand for the furniture almost gets doubled during this period. The prime time to enter into market would be June so that the Showroom gets into commercial operations before the start of the wedding season.

55..55 PPRROOPPOOSSEEDD BBUUSSIINNEESSSS LLEEGGAALL SSTTAATTUUSS The said project can be established as a sole proprietorship or a partnership and it can also be registered under the Companies Ordinance, 1984 with the Securities & Exchange Commission of Pakistan. The selection totally depends upon the choice of the entrepreneur. This pre-feasibility assumes the legal status to be sole proprietorship as this does not involve heavy investment. Moreover less legal requirements and costs are involved in forming and running a sole proprietorship or partnership business. Lower tax rates for this type of business legal status is an added advantage.

55..66 PPRROOJJEECCTT CCAAPPAACCIITTYY AANNDD RRAATTIIOONNAALLEE The proposed project is capable of selling a complete range of wooden furniture to meet the demands of the domestic market. The furniture is purchased from local manufacturers. The show room will work 11 hours a day for 300 days in a year.

55..77 PPRROOPPOOSSEEDD LLOOCCAATTIIOONN The said project can be started in any central area of developed cities like Lahore, Karachi, Islamabad, Sialkot or Faisalabad etc. It is however assumed that this showroom is established at Lahore – Main Boulevard DHA. Most successfully running furniture shops are located in areas like Gulberg, Cavalry, Cantt Fortress, Main Boulevard DHA, Allama Iqbal town, Township, Ferozpur road, Multan road and Bedian road. The demand

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in these areas is influenced by the number of new houses/offices built and old houses/offices renovated/reconstructed.

55..88 PPRROOJJEECCTT IINNVVEESSTTMMEENNTT Total Initial Cost of the Project is worked out as follows:

Table 5-1 Project cost

RupeesCapital Investment Requirement 1,523,000Working Capital Requirements 4,048,836Total Project Investment Requirement 5,571,836The proposed pre-feasibility is based on the assumption of 50% debt and 50% equity. However, this composition of debt and equity can be changed as per the requirement of the investor.

Table 5-2 Project financing

RupeesDebt 50% 2,785,918Equity 50% 2,785,918Total Project Investment 5,571,836

Table 5-3 Project returns IRR 29 %NPV @ 20 % Rs. 2,121,943Pay Back Period 3.78 years

66

IINNDDUUSSTTRRYY SSTTRRUUCCTTUURREE Total world trade in furniture is estimated to be around $23.2 billion, of which the share of wooden furniture is 77 percent, followed by metal furniture at 17 percent and plastic furniture at 6 percent. Italy is the world’s biggest exporter of furniture followed by Germany and Canada. Pakistan’s share in the international wooden furniture market is insignificant, despite the fact that the country has a history of craftsmanship and innovation in the field of wooden furniture. The wooden furniture industry represents 95 percent of the total market in the country. The leading furniture making areas of Pakistan are Chiniot, Gujrat, Peshawar, Lahore and Karachi. In terms of exports, Karachi comes first, followed by Lahore and Peshawar.1

1 The Express Tribune (http://tribune.com.pk/story/19304/prospects-and-fears-for-pakistans-furniture-industry/)

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66..11 FFUURRNNIITTUURREE CCLLUUSSTTEERRSS IINN PPAAKKIISSTTAANN

66..11..11 GGuujjrraatt22

Furniture industry developed gradually at its own and a number of showrooms were set up on G.T Road, and Gujrat. The estimated overall furniture sale from Gujrat is about Rs. 500 million per annum. Furniture cluster of Gujrat is famous for the production of quality wooden furniture. Gujrat was known for its furniture manufacturing even before the independence because of the availability of cheap skilled labour. Presently most of the manufacturers are depending on traditional method (labour intensive technology) that results in the low productivity. There are about 300 units (including shops) in Gujarat associated with this sector. The sector breakdown shows that majority of the sector is based on 225 to 250 micro units, 40 to 50 small units and 5 medium sized units. There are approximately 7,000 to 8,000 people directly employed in this industry. Gujarat is well known for its top quality furniture all over Pakistan. A few units are exporting furniture to different countries including, UK, USA, Saudi Arabia, Middle East etc. The total export of Furniture from Gujarat was about US$ 4.5 million.3 However, due to limited production capacity these firms are not able to fulfil the large export orders and hence can not compete vigorously in international markets. China and India are the major competitors. Their prices are less and quality is better.

66..11..22 LLaahhoorree44

The Lahore cluster is essentially based on the traders of wooden furniture. There are more than 1,500 retail shops trading in Medium Density Fibreboard (MDF) furniture, office, bedroom and living room furniture. However, in the last decade this market has diversified its product range to all kinds of furniture articles. These traders usually purchase furniture in semi-finished form from Chiniot and polish and upholster it in their workshops. However, there are around 100-200 small cottage sized workshops in Lahore are engaged in wooden furniture manufacturing. Their profit margins are quite high as all the value addition is done in Lahore according to the requirement of the customers.

Majority of these manufacturing units use low-tech machinery which are either locally made or are second hand imported machines. However, some furniture manufacturers have established a production line based on new modern machinery and seasoning kiln facilities. On average each manufacturing facilities employs 5 to 20 workers depending on its scope of work.

At present there are around five large clusters of furniture markets within Lahore i.e. Fortress Stadium, Gulberg, Allama Iqbal Town, Ferozepur Road and Multan Road. These markets mostly cater to the needs of the domestic market.

66..11..33 CChhiinniioott55

Although Chiniot wooden furniture industry is approximately 150 to 200 years old, but still remained at cottage sized scale. There are almost 3,000 to 4,000 manufacturing units in Chiniot, which use primitive technology and techniques for manufacturing. Around 2 http://www.smeda.org/downloads/Cluster_Profile_Furniture_Gujrat.pdf 3 Directorate of Industries 4 Furniture blog (http://furniturekingdom.blogspot.com/) 5 Furniture blog (http://furniturekingdom.blogspot.com/)

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40,000 people are directly employed by this industry. The demand for this kind of furniture is increasing in the international market.

Chiniot is a major cluster engaged in the manufacturing of handmade wooden carved furniture. The basic raw material used for hand carved furniture is Sheesham wood, which is under an attack of an unknown kind of disease. This has resulted in a shortage of raw material and increase in its price.

The stakeholders can be categorized into manufacturers, craftsmen, traders, timber merchants, exporters, transporters and financial institutions. The number of skilled craftsmen is declining, which is creating severe shortage in the industry. The semi-finished items (Kora) are sold to all major cities throughout Pakistan.

77

WWOORRLLDD IIMMPPOORRTTSS AANNDD EEXXPPOORRTTSS66 Total world trade in furniture is estimated to be around $23.2 billion, of which the share of wooden furniture is 77 percent, followed by metal furniture at 17 percent and plastic furniture at 6 percent. Italy is the world’s biggest exporter of furniture followed by Germany and Canada. United States is the biggest importer of wooden furniture followed by Germany and France. Pakistan’s share in the international wooden furniture market is insignificant, despite the fact that the country has a history of craftsmanship and innovation in the field of wooden furniture.

In terms of exports, Karachi comes first, followed by Lahore and Peshawar. Exporters are suffering manifold problems while local manufacturers are facing challenges due to heavy imports of furniture. Chinese furniture has also hit the local industry by 70 percent and the sales of locally manufactured household furniture have gone down by 30 percent.

Pressure on the domestic industry has immensely increased as other countries like Thailand and Korea have started exporting extensively to Pakistan.

At the same time, the high cost of the furniture business has threatened the sector as a whole. The prices of all raw materials used in making furniture which include chipboard, timber, foam, polish chemical materials, colour paints and hard ware have increased. Timber production on the other hand has gone down drastically because of unchecked deforestation.

As a result, imported chipboard is used in manufacturing bedroom sets, which sell the most. About sixty percent raw material used in furniture making is imported from China. Imported item mostly used in furniture making are chipboard, hardware items and glass.

Pakistan’s major buyers of wooden furniture are the UK, the USA, Sri Lanka and Gulf countries like the UAE, Saudi Arabia, Oman and Kuwait. The United States buys mostly bedroom furniture. UK and the Gulf countries import kitchen furniture and office furniture. For example, the British retail chain Harrods sells some Pakistani furniture at its outlets.

The foreign sources of furniture in Pakistan are China, Germany and Italy; however, they have not yet succeeded in taking over the local market’s share of heavy furniture. The

6 The Express Tribune - http://tribune.com.pk/story/19304/prospects-and-fears-for-pakistans-furniture-industry/

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quality of local heavy furniture is higher and the price is comparatively lesser. Customs, freight charges are being charged according to the weight and volume of an item, therefore, imported furniture items cost much higher particularly in case of heavy furniture. However, the imported items which fall in the light furniture category have dominated the market which has impaired the local industry by almost 80 per cent.

An attempt on deco furniture and by using MDF chip board and fibre glass approach, the domestic suppliers have been able to attract the consumers again to the local markets. Using this approach the manufacturers have created decent designs and carvings on the bedroom sets and an excellent indigenous bedroom set is now available in Rs.175,000.

Table 7-1 Pakistan’s Import and Export figures

Period Import Value Export Value 2009 $12,951,770 $6,886,417 2008 $11,210,886 $8,162,790 2007 $16,721,587 $10,526,255 2006 $14,851,839 $10,144,781 2005 $10,282,913 $12,441,062

88 MMAARRKKEETT IINNFFOORRMMAATTIIOONN AABBOOUUTT FFUURRNNIITTUURREE At present there are around five large clusters of furniture markets in Lahore and these markets mostly cater to the needs of the domestic market.

88..11 RREEQQUUIIRREEMMEENNTT OOFF WWOOOODDEENN FFUURRNNIITTUURREE In local market, the requirement for wooden furniture can be categorized into four types namely:

a. For newly built house;

b. For dowry;

c. For renovation;

d. For Institutional buyer.

Customers from the first category usually buy range of products like bed sets, dining sets and sofa sets with other required furniture for their entire house. In Pakistani society, furniture is given as dowry. Therefore, its demand increases in the spring and winter season when most weddings take place. Basic requirement of these customers is a bedroom set of new designs and styles. These types of customers also buy sofa set or dining set. The renovation and improvement requirements also provide a considerable market. Initially, the entrepreneur should target these customers to establish the business and to increase the customer base later on. These potential customers can play a major role in the success this business. The hotel industry provides considerable scope for wooden furniture. Large orders can be secured to supply furniture to hotels and resorts. However, given the current political and economical situation of Pakistan the corporate sector does not provide much opportunity for furniture business.

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99 PPRROOJJEECCTT MMAARRKKEETTIINNGG SSTTRRAATTEEGGYY 99..11 MMAARRKKEETTIINNGG SSTTRRAATTEEGGYY When marketing for furniture we could use print media such as newspaper and fashion or interior decoration magazines. Internet marketing can also be used.

In addition, sales promotion must be done in order to develop new customers and keep in touch with current customers. For example through a newsletter (by e-mail) one can make the customers aware that the showroom is following the latest interior decoration trends and latest developments are taking place in quality standards and newer styles and fashion. Additionally, a constant, prompt and reliable communication is vital to build and maintain a long-term business relationship with your customers. To establish a brand name high quality standards must be maintained along with good customer service.

99..22 TTRREENNDDSS IINN FFUURRNNIITTUURREE SSTTYYLLEE In all furniture styles some significant trends are:

• Individual items of furniture can be used for different functions: flexible seating for sitting, reclining or sleeping; modular wall systems and living room systems.

• Furniture for older people with a focus on comfort (e.g. higher seats).

• Part of the trend of making more use of the home space is to extend the home into the garden or onto a patio or veranda.

• Many households are full of furniture, so rather than overloading their homes, consumers are looking for something with a simple elegance to achieve “less is more”.

• Combined with this simple functionality, consumers want aesthetically pleasing designs. For example, LED illumination to enhance simple cabinet, invisible loudspeakers in internal doors, new coverings on handles that feel good to touch, flat screen TVs which almost disappear into surroundings when not being used.

• Small visible legs, made of metal or wood, are an important feature at the moment for living room chairs, couches, armchairs and cupboards and small tables.

99..33 TTRREENNDDSS IINN MMAATTEERRIIAALLSS,, CCOOLLOOUURRSS AANNDD SSHHAAPPEESS

Home furniture and furnishings are becoming more colourful. The colours used in upholstery furniture fabrics, and cupboard and cabinet fronts are loud and bold. The design and form in upholstered furniture remains voluminous. As far as materials are concerned, there is a decrease in the use of cherry in new lines. However, cherry, along with oak and walnut, are key materials for products at the high end market.

The vogue is still very much for the dark, exotic look with oak and other wood species presented in a number of guises, striped effect to emulate zebrano, heavily lacquered and most popular of all, stained dark, almost black. Modern technology is enhancing pieces with improved finishes and high-tech options.

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99..33..11 MMaatteerriiaallss ccoommmmoonnllyy uusseedd

• Woods: Interior parts and primary and secondary frames of most items are made from lower quality wood like birch, ply and laminates, while for exposed surfaces fine timbers are used. Lighter hard woods such as oak, beech, maple, alder, birch, cherry and hickory have proved more popular than pine.

• Rattan: Fine wickerwork, bamboo, hemp, abaca and sea grass continue to be important materials, which are increasingly used in natural interiors.

• Metals: The metallic, hi-tech or industrial look is popular in furniture, being an eye catching element. Metals in simple forms are often combined with wood or glass. Stainless steel, chrome, wrought iron, aluminium and copper have become popular in the past few years.

• Glass: Smoked glass and other opaque finishes, rather than clear (cold) glass is popular. Natural and acrylic glass is increasingly used in combination with other materials in tables, cabinets etc.

• New materials: Experiments are done with new materials: polycarbonates in matt finish, high gloss, transparent and in many colours. Also, recycled polyester is increasingly being used in modern items.

• Fabrics: These are softer in texture and appearance, with single light natural colours used as a basis. Small motifs, textured look; geometric or large colourful designs are also in fashion. Floral designs, micro-fibres are still common and (soft) hi-tech fibres are gaining importance.

• Finishes: There is a trend towards high gloss finish in many colours for tables and chests. There is also much use of polished, laminates, satin-finish, acid-etched, painted glass with neutral or bright colours; opaque lacquers; painted and enamelled steel; anodized, polished and mat aluminium.

1100 PPRROOPPOOSSEEDD PPRROODDUUCCTT MMIIXX This unit is proposed to sell different types of wooden furniture. As this project is catering to the needs of the domestic market, it is assumed that the project will be selling the product mix given in the table below. Each product mix can be manufactured in three different qualities of wood depending on the customer’s budget and requirement. The project assumes that 30% of the total sales is of Quality A products, Quality A being the most superior quality, 40% sales will be of Quality B products, this being the fine quality and 30% sales will be of Quality C products, Quality C being of normal quality.

The projected sales given below are only an approximation. The sales in actuality vary greatly and can not be predicted in advance. Bedroom and common room furniture is the largest segment as far as the domestic market is concerned.

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Table 10-1 Product Mix 1. Bed Room Set

Total Projected

Sales For Bachelors Single bed, side table, one dressing table,

two chairs & one stool. 50

For Married couples Double bed, two side tables, one dressing table, double seater sofa, one TV Cabinet & one stool.

100

2. Dinning Room 6 Seater Dinning table and chairs with trolley 50 8 Seater Dinning table and chairs with trolley 50 3. Common Room One TV Trolley, one three seater sofa and

two single seater sofas, one wooden partition and a central table.

75

4. Drawing Room One three seater, two single seater and one double seater sofa, one central table, one decorative sofa.

50

5. Office furniture Executive One executive table, one revolving chair,

two chairs, one computer table and one 2 seater sofa.

50

General One table including computer cabinet, one revolving chair and two other chairs

100

1111 HHUUMMAANN RREESSOOUURRCCEE RREEQQUUIIRREEMMEENNTT 1111..11 HHuummaann RReessoouurrccee RReeqquuiirreemmeennttss

Following table shows the requirements of Human Resources and the proposed annual salary.

Table 11-1 Human Resource detail

Description Employees Salary / Month (Rs.)

Annual Salary (Rs.)

ADMINISTRATIVE COST Store Manager 1 35,000 420,000 Store Supervisor 1 28,000 336,000 Workshop Labour 2 10,000 240,000 Office boy 1 7,000 84,000 Guard 2 8,500 204,000Total Administrative Salaries 1,284,000

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MARKETING COST Indoor Sales person 3 15,000 540,000Outdoor Sales person 2 20,000 480,000Total Marketing Salaries 1,020,000

1122 OOFFFFIICCEE EEQQUUIIPPMMEENNTT Following tables present the office equipment and furniture/fixtures requirement for the showroom.

Table 12-1 Office Equipment

Items No. of Items

Cost per Unit Rupees

Total Cost Rupees

Computers 1 25,000 25,000Printers 1 12,500 12,500Fax Machine 1 10,000 10,000Telephone Sets 2 1,000 2,000Fire Fighting Equipments 4 4,500 18,000TOTAL 67,500

Table 12-2 Furniture, Fixture & Fittings

Items Cost Rupees

Total Cost Rupees

Office Furniture (tables, chairs, cabinets, etc.) 166,000 166,000

Table 12-3 Other Equipment

Items Qty Cost per Unit Rupees

Total Cost Rupees

Air Conditioners / Split Units 1 40,000 40,000 Generator 1 150,000 150,000Electric Installations & Fittings - cables & wires

150,000 150,000

Fancy Lights 50 500 25,000 Ceiling fans 5 2,500 12,500Other decoration expenses - sign Board, antiques, wall paintings etc.

150,000 150,000

TOTAL 527,500

1133 LLAANNDD && BBUUIILLDDIINNGG RREEQQUUIIRREEMMEENNTT An already built showroom can be rented for the proposed business in any commercial area or it can be purchased based on the judgment of the entrepreneur. It is however recommended to rent the space. The rent in this feasibility is taken to be about Rs.

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112,500/- per month. The total area requirement for this proposed project is assumed to be of approximately 1 kanal.

Table 13-1 Space Requirement

Space Required. (Sq. ft) Display Hall 4,000Workshop/Store room 220Management Office 200Kitchen 50Washrooms 30Total Infrastructure Cost 4,500

1144 KKEEYY AASSSSUUMMPPTTIIOONNSS 1144..11 PPrroojjeecctt AAssssuummppttiioonnss Projected Life of The Project in Years 10Sponsors' Equity 50%Debt Financing 50%Long term Interest rate 16%Short term Interest rate 14%Debt Tenure in Years 5Interest on cash in bank 10%Tax rate7 25%Insurance expense 5%

1144..22 OOppeerraattiinngg AAssssuummppttiioonnss Total No. of Months operational in one year 12No of Working Days per year 300Hours operational in a day 11

1144..33 DDeepprreecciiaattiioonn RRaattee AAssssuummppttiioonnss Land 0% of the Written Down Value Buildings 5% of the Written Down ValueTools and Equipment 10% of the Written Down ValueOffice Equipment 33% of the Written Down ValueFurniture & Fixtures 10% of the Written Down ValueVehicles 20% of the Written Down Value

1144..44 CCaasshh FFllooww AAssssuummppttiioonnss Furniture Inventory 30 daysStores and Spares 30 days 7 Tax rate is fixed through out the project since the income falls in 25% tax deduction slab

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Accounts Payable 30 days

1144..55 MMiisscceellllaanneeoouuss AAssssuummppttiioonnss Inflation rate 10% Electricity growth rate 10% Water price growth rate 10% Gas price growth rate 10% Wage growth rate 10% Office equipment price growth rate 10% Office vehicles price growth rate 10%

1144..66 EExxppeennssee AAssssuummppttiioonnss Cost price growth rate 5% Freight and carriage charges 5% % of furniture cost Freight charges growth rate 5%Staff benefits expense 10% % of administration Staff benefits expense growth rate 5%Travelling expense 10% % of administration Communication expense growth 5%Office expenses 12% % of administration Promotional expense 2% % of revenue Promotional expense growth rate 5%Machinery & equipment insurance rate 5% 1st year onwards Professional fees (legal, audit, consultants, etc.) 0.5% % of revenue

1144..77 RReevveennuuee AAssssuummppttiioonnss Profit Margin8 25%Sales growth rate 5%Sales price growth rate 5%

1144..88 RReevveennuuee AAssssuummppttiioonnss -- PPrroodduucctt MMiixx

PROJECTED SALES YEAR - 1 Total sales Quality A Quality B Quality C 30% 40% 30%Bedroom set

For Bachelors 50 15 20 15For married couples 100 30 40 30

Dining room 6 seater 50 15 20 15

8 The profit margin in the Furniture business can be as high as 100% or even more. The profit margin is taken to be 25% of cost price in this particular pre-feasibility; however it depends upon the owner’s discretion.

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8 seater 50 15 20 15 Common room 75 23 30 23Drawing room 50 15 20 15Office furniture

Executive 50 15 20 15General 100 30 40 30

1144..99 RReevveennuuee AAssssuummppttiioonnss -- SSaalleess pprriiccee

SALES PRICE - YEAR WISE YEAR - 1 Quality A Quality B Quality C Bedroom set

For Bachelors 60,000 45,000 35,000For married couples 90,000 70,000 50,000

Dining room 6 seater 60,000 50,000 40,0008 seater 75,000 65,000 57,500

Common room 100,000 85,000 75,000Drawing room 100,000 90,000 80,000Office furniture

Executive 50,000 40,000 35,000General 30,000 25,000 18,000

1144..1100 CCoosstt ooff SSaalleess

COST PRICE - YEAR WISE YEAR - 1 Quality A Quality B Quality C Bedroom set

For Bachelors 45,000 33,750 26,250For married couples 67,500 52,500 37,500

Dining room 6 seater 45,000 37,500 30,0008 seater 56,250 48,750 43,125

Common room 75,000 63,750 56,250Drawing room 75,000 67,500 60,000Office furniture

Executive 37,500 30,000 26,250General 22,500 18,750 13,500

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Furniture Showroom

2 22

1155 1155..11 PPrroojjeecctt CCoosstt

Capital Investment Rs. in actualsLand - Building/Infrastructure - Tools & equipment 100,000 Furniture & fixtures 693,500 Office vehicles - Office equipment 67,500 Pre-operating costs 612,000 Legal, Licensing, and Training costs 50,000 Total Capital Costs 1,523,000 Working Capital Rs. in actualsStocks anFurnitureFrieght anUpfront buUpfront inCashTotal Work

Total InInitial FiDebtEquity

Payback PInternal

Initial Investment

Net Presen

d spares inventory 45,923 Inventory 2,296,125 d carriage expense 26,788 ilding rental 675,000 surance payment 5,000

1,000,000 ing Capital 4,048,836

vestment 5,571,836 nancing Rs. in actuals

50% 2,785,918 50% 2,785,918

eriod (Yrs) 3.90 3.78Rate of Return 34% 29%

t Value 1,362,071 2,121,943

Project ReturnsEQUITY PROJECT

FFIINNAANNCCIIAALL SSTTAATTEEMMEENNTTSS

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1155..22 IInnccoommee SSttaatteemmeenntt Income Statement

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10Revenue 30,615,000 33,753,038 37,212,724 40,969,595 45,168,979 49,798,799 54,903,176 60,530,752 66,735,154 73,575,507 Cost of sales

Cost of furniture 22,961,250 25,314,778 27,909,543 30,727,197 33,876,734 37,349,099 41,177,382 45,398,064 50,051,365 55,181,630 Freight and carriage 1,148,063 1,265,739 1,395,477 1,536,360 1,693,837 1,867,455 2,058,869 2,269,903 2,502,568 2,759,082 Stocks and spares 459,225 506,296 558,191 614,544 677,535 746,982 823,548 907,961 1,001,027 1,103,633

Total cost of sales 24,568,538 27,086,813 29,863,211 32,878,100 36,248,106 39,963,536 44,059,799 48,575,928 53,554,961 59,044,344 Gross Profit 6,046,463 6,666,225 7,349,513 8,091,495 8,920,873 9,835,263 10,843,377 11,954,823 13,180,193 14,531,163

General administration & selling expensesAdministrative salaries 1,284,000 1,412,400 1,553,640 1,709,004 1,879,904 2,067,895 2,274,684 2,502,153 2,752,368 3,027,605 Administration benefits expense 128,400 141,240 155,364 170,900 187,990 206,789 227,468 250,215 275,237 302,760 Marketing staff salaries 1,020,000 1,122,000 1,234,200 1,357,620 1,493,382 1,642,720 1,806,992 1,987,691 2,186,461 2,405,107 Marketing staff benefits 102,000 112,200 123,420 135,762 149,338 164,272 180,699 198,769 218,646 240,511 Building rental expense 1,350,000 1,485,000 1,633,500 1,796,850 1,976,535 2,174,189 2,391,607 2,630,768 2,893,845 3,183,229 Deisel expense 216,000 237,600 261,360 287,496 316,246 347,870 382,657 420,923 463,015 509,317 Electricity expense 291,339 320,473 352,520 387,772 426,550 469,205 516,125 567,738 624,511 686,963 Travelling expense 128,400 141,240 155,364 170,900 187,990 206,789 227,468 250,215 275,237 302,760 Communications expense (phone, fax, mail, internet, etc.) 120,000 126,000 132,300 138,915 145,861 153,154 160,811 168,852 177,295 186,159 Office expenses (stationary, entertainment, janitorial etc.) 154,080 169,488 186,437 205,080 225,589 248,147 272,962 300,258 330,284 363,313 Promotional expense 870,000 565,500 113,100 118,755 124,693 130,927 137,474 144,347 151,565 159,143 Insurance expense (Machinery/tools and vehicle) 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 Professional fees (legal, audit, consultants, etc.) 153,075 168,765 186,064 204,848 225,845 248,994 274,516 302,654 333,676 367,878 Depreciation expense 101,850 101,850 101,850 109,298 109,298 109,298 119,210 119,210 119,210 132,404 Amortization of pre-operating costs 122,400 122,400 122,400 122,400 122,400 - - - - - Amortization of legal, licensing, and training costs 10,000 10,000 10,000 10,000 10,000 - - - - -

Subtotal 6,056,544 6,240,656 6,325,519 6,929,101 7,584,620 8,172,749 8,974,676 9,845,294 10,802,349 11,867,648 Operating Income (10,082) 425,569 1,023,994 1,162,394 1,336,253 1,662,513 1,868,702 2,109,529 2,377,844 2,663,514

Other income (interest on cash) 170,325 210,870 283,756 388,249 515,430 672,941 868,374 1,099,996 1,365,150 1,986,809 Gain / (loss) on sale of office equipment - - 40,500 - - 74,156 - - 108,826 127,329 Gain / (loss) on sale of office vehicles - - - - - - - - - - Earnings Before Interest & Taxes 160,244 636,438 1,348,250 1,550,643 1,851,683 2,409,610 2,737,076 3,209,525 3,851,819 4,777,652

Interest expense on long term debt (Project Loan) 121,840 104,123 83,572 59,732 32,079 - - - - - Interest expense on long term debt (Working Capital Loan) 156,782 - - - - - - - - - Subtotal 278,622 104,123 83,572 59,732 32,079 - - - - - Earnings Before Tax (118,378) 532,315 1,264,678 1,490,911 1,819,604 2,409,610 2,737,076 3,209,525 3,851,819 4,777,652

Tax - 66,539 265,582 372,728 454,901 602,402 684,269 802,381 962,955 1,194,413 NET PROFIT/(LOSS) AFTER TAX (118,378) 465,776 999,096 1,118,183 1,364,703 1,807,207 2,052,807 2,407,144 2,888,865 3,583,239

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1155..33 BBaallaannccee SShheeeett

Balance SheetYear 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Current assetsCash & Bank 1,562,500 1,844,005 2,373,391 3,301,726 4,463,259 5,845,337 7,613,477 9,754,010 12,245,907 15,057,091 24,679,082 Stocks and spares inventory 45,923 50,630 55,819 61,454 67,753 74,698 82,355 90,796 100,103 110,363 - Furniture inventory 2,296,125 2,531,478 2,790,954 3,072,720 3,387,673 3,734,910 4,117,738 4,539,806 5,005,137 5,518,163 - Freight and carriage rental 26,788 29,534 32,561 35,848 39,523 43,574 48,040 52,964 58,393 64,379 - Prepaid rental expense 112,500 123,750 136,125 149,738 164,711 181,182 199,301 219,231 241,154 265,269 - Pre-paid insurance 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 -

Total Current Assets 4,048,836 4,583,896 5,392,850 6,624,986 8,125,920 9,882,202 12,062,911 14,658,307 17,651,693 21,015,765 24,679,082 Fixed assets

Furniture & fixtures 693,500 624,150 554,800 485,450 416,100 346,750 277,400 208,050 138,700 69,350 - Office equipment 67,500 45,000 22,500 89,843 59,895 29,948 119,580 79,720 39,860 159,161 106,108

Total Fixed Assets 861,000 759,150 657,300 645,293 535,995 426,698 436,980 317,770 198,560 238,511 106,108 Intangible assets

Pre-operation costs 612,000 489,600 367,200 244,800 122,400 - - - - - - Legal, licensing, & training costs 50,000 40,000 30,000 20,000 10,000 - - - - - -

Total Intangible Assets 662,000 529,600 397,200 264,800 132,400 - - - - - - TOTAL ASSETS 5,571,836 5,872,646 6,447,350 7,535,078 8,794,315 10,308,899 12,499,892 14,976,078 17,850,253 21,254,277 24,785,190

Current liabilitiesAccounts payable 2,554,336 2,816,155 3,104,372 3,418,262 3,768,634 4,154,919 4,580,798 5,050,330 5,567,989 5,518,163

Total Current Liabilities - 2,554,336 2,816,155 3,104,372 3,418,262 3,768,634 4,154,919 4,580,798 5,050,330 5,567,989 5,518,163 Other liabilities

Deferred tax - (24,445) (75,032) (75,032) (75,032) (77,532) (80,032) (82,532) (85,032) (87,532) Long term debt (Project Loan) 761,500 650,771 522,325 373,328 200,491 - - - - - - Long term debt (Working Capital Loan) 2,024,418 - - - - - - - - - -

Total Long Term Liabilities 2,785,918 650,771 497,880 298,296 125,459 (75,032) (77,532) (80,032) (82,532) (85,032) (87,532)

Shareholders' equityPaid-up capital 2,785,918 2,785,918 2,785,918 2,785,918 2,785,918 2,785,918 2,785,918 2,785,918 2,785,918 2,785,918 2,785,918 Retained earnings (118,378) 347,397 1,346,493 2,464,676 3,829,379 5,636,586 7,689,393 10,096,537 12,985,402 16,568,641

Total Equity 2,785,918 2,667,539 3,133,315 4,132,411 5,250,594 6,615,297 8,422,504 10,475,311 12,882,455 15,771,319 19,354,559 TOTAL CAPITAL AND LIABILITIES 5,571,836 5,872,646 6,447,350 7,535,078 8,794,315 10,308,899 12,499,892 14,976,078 17,850,253 21,254,277 24,785,190

Liabilities & Shareholders' Equity

Assets

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PREF-99/January, 2011/ Rev

Cash Flow StatementYear 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Operating activitiesNet profit (118,378) 465,776 999,096 1,118,183 1,364,703 1,807,207 2,052,807 2,407,144 2,888,865 3,583,239 Add: depreciation expense 101,850 101,850 101,850 109,298 109,298 109,298 119,210 119,210 119,210 132,404 amortization of pre-operating costs 122,400 122,400 122,400 122,400 122,400 - - - - - amortization of training costs 10,000 10,000 10,000 10,000 10,000 - - - - - Deferred income tax - (24,445) (50,587) - - (2,500) (2,500) (2,500) (2,500) (2,500) Equipment inventory (45,923) (4,707) (5,190) (5,635) (6,299) (6,945) (7,657) (8,441) (9,307) (10,261) 110,363 Furniture inventory (2,296,125) (235,353) (259,476) (281,765) (314,954) (347,237) (382,828) (422,068) (465,330) (513,026) 5,518,163 Freight and carriage rental (26,788) (2,746) (3,027) (3,287) (3,674) (4,051) (4,466) (4,924) (5,429) (5,985) 64,379 Prepaid building rent (112,500) (11,250) (12,375) (13,613) (14,974) (16,471) (18,118) (19,930) (21,923) (24,115) 265,269 Advance insurance premium (5,000) 500 500 500 500 500 500 500 500 500 500 Accounts payable 2,554,336 261,819 288,217 313,891 350,372 386,285 425,879 469,532 517,659 (49,826)

Cash provided by operations (2,486,336) 2,416,652 657,832 1,167,175 1,334,370 1,582,569 1,887,720 2,140,533 2,491,897 2,970,346 9,621,991

Financing activitiesProject Loan - principal repayment (110,729) (128,446) (148,997) (172,837) (200,491) - - - - - Working Capital Loan - principal repayment (2,024,418) - - - - - - - - - Short term debt principal repayment - - - - - - - - - - Additions to Project Loan 761,500 - - - - - - - - - - Additions to Working Capital Loan 2,024,418 - - - - - - - - - - Issuance of shares 2,785,918 - - - - - - - - - -

Cash provided by / (used for) financing activities 5,571,836 (2,135,147) (128,446) (148,997) (172,837) (200,491) - - - - -

Investing activitiesCapital expenditure (1,523,000) - - (89,843) - - (119,580) - - (159,161) - Acquisitions

Cash (used for) / provided by investing activities (1,523,000) - - (89,843) - - (119,580) - - (159,161) - NET CASH 1,562,500 281,505 529,386 928,335 1,161,533 1,382,078 1,768,140 2,140,533 2,491,897 2,811,184 9,621,991

2 25

1155..44 CCaasshh FFllooww SSttaatteemmeenntt

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1166 AANNNNEEXXUURREE 1166..11 MMaajjoorr FFuurrnniittuurree SSuupppplliieerrss aanndd MMaannuuffaaccttuurreerrss

Name Location M/s Trend Line Furnishers G.T. Road Contact: 053-3517120

Gujrat

National Furnishers G.T. Road Contact: 053-3514967

Gujrat

GEO Furnishers G.T. Road Contact: 053-3515186

Gujrat

Highlite Furniture Contact: 0476-335090

Chiniot

Chiniot Art Furniture Katchery Road Contact: 0300-77009201

Chiniot

Galaxy Furniture Contact: 0476-332213

Chiniot

1166..22 TTaaxx DDeedduuccttiioonn iinnccoommee ssllaabbss

Income Slabs Tax Rate 0.00% 100,000 – 110,000 0.50% 110,000 – 125,000 1.00% 125,000 – 150,000 2.00% 150,000 – 175,000 3.00% 175,000 – 200,000 4.00% 200,000 – 300,000 5.00% 300,000 – 400,000 7.50% 400,000 – 500,000 10.00% 500,000 – 600,000 12.50% 600,000 – 800,000 15.00% 800,000 – 1,000,000 17.50% 1,000,000 – 1,300,000 21.00% 1,300,000 and above 25.00%

PREF-99/January, 2011/ Rev 2

26