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Prepared for Torres Strait Island Regional Council. Page 1

Hammond Island Cabinet Workshop and Truss Plant Feasibility Study

Prepared for: Torres Strait Island Regional Council.14 April 2015


Prepared for Torres Strait Island Regional Council.

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Contact Information <Cardno (Qld) Pty Ltd> Trading as <Cardno> ABN <57 051 074 992> <585 Flinders St Townsville. QLD 4810> Telephone: <07 4772 1166> Facsimile: <07 4721 2508> International: <61 7 4772 1166> <Email: [email protected] au> <www.cardno.com.au>

Author(s): Gary Jensen Senior Project Manager

Approved By: Michael Bancroft RPEQ

Document Information Prepared for: Torres Strait Island Regional Council.

Project Name: Hammond Island Cabinet Works and Truss Plant Feasibility Study

File Reference 9580/01 Job Reference 9580/01 Date 15 April 2015 Version Number Version 4 Date: 9 April 2015 Date Approved: 14 April 2015

Document History

Version Effective Date

Description of Revision Prepared by: Reviewed by:

1 6 Nov 14 Draft for Client Review Gary Jensen Michael Bancroft

2 10 Nov 14 Final Draft Gary Jensen Michael Bancroft

3 14 Nov 14 Truss Plant added Gary Jensen Michael Bancroft

4 14 Apr 15 Final Gary Jensen Michael Bancroft

© Cardno. Copyright in the whole and every part of this document belongs to Cardno and may not be used, sold, transferred, copied or reproduced in whole or in part in any manner or form or in or on any media to any person other than by agreement with Cardno.

This document is produced by Cardno solely for the benefit and use by the client in accordance with the terms of the engagement. Cardno does not and shall not assume any responsibility or liability whatsoever to any third party arising out of any use or reliance by any third party on the content of this document.



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Executive Summary – Part A - Cabinet Workshop Cardno (Qld) Pty Ltd has been commissioned by the Torres Strait Island Regional Council (Council)

to prepare a Feasibility Study, for the establishment of a Cabinet Workshop on Hammond Island; The Council undertakes the maintenance of buildings and houses in all of the Torres Strait Island

communities administered by the Council, through the Council’s Building Services Unit. The value of works undertaken is approximately $8 million per annum;

Between Nov 2013 and Nov 2014 Council purchased $557,592 incl. GST of cabinet products from mainland suppliers, excluding the cost of freight, shipped as Flat Packs from Cairns to site;

There is currently no supplier of manufactured cabinet products operating in the Torres Strait, with all items being supplied from mainland suppliers in Cairns or other southern centres;

Council wishes to establish a cabinet workshop on Hammond Island to manufacture fit-out cabinet products that will match industry quality standards, to provide employment and training opportunities for community members, and to reduce the Council’s reliance on purchasing these manufactured products from outside suppliers;

Council anticipates that if a cabinet workshop is established on Hammond Island that can produce quality products to supply Council’s requirements for maintenance works, a potential demand may also arise to supply products to the Northern Peninsula and Torres Shire communities;

The establishment of a cabinet workshop on Hammond Island provides employment and training for a small number of residents due to the limited market catchment. It would be possible to operate the workshop with a minimum of three employees comprising of a workshop manager responsible for; management of the cabinet workshop, marketing, and the training of two apprentices;

Hammond Island has a limited population of approximately 220 people; The building identified to accommodate the workshop is to small and will require extension; Capital costs for the establishment of the cabinet workshop are likely to be in the order of:

Refurbish and extend existing building $ 93,500 Supply and installation of equipment $ 47,500; Upgrade Ergon Supply (Allowance) $ 20,000; Office fit-out $ 2,500; Upgrade staff amenities allowance $ 2,500; Professional Fees $ 25,000; Contingency Sum (Allowance) $ 25,000; Total Capital Cost $216,000 excl. GST

Four management models for the business were considered in order of diminishing financial returns and diminishing risk to Council:

Operated under the TSIRC Building Services Unit; Operated as a separate TSIRC business reporting directly to the Chief Financial Officer; Operated as a joint venture with a supplier; Operated as a private business;

The gross economic benefit to the Torres Strait economy is in excess of $600,000 per annum; To enable apprentices to be trained as cabinet makers it will be necessary to recruit and retain a

trade qualified cabinetmaker with appropriate experience to manage the workshop and train the apprentices;

Formal apprentice block training may be able to be delivered on Thursday Island or at the workshop on Hammond Island through TAFE North;

The accurate determination of the value of materials (variable costs) requires a detailed analysis of the 225 orders placed between Nov 2013 and Nov 2014 which is beyond the scope of this Feasibility Study. However the allowances included in the feasibility analysis are considered to be conservative.



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Executive Summary - Part B - Truss Plant The Cardno (Qld) Pty Ltd commission has been extended by the Torres Strait Island Regional

Council (Council) to prepare a Feasibility Study, for the establishment of a timber truss manufacturing plant on Hammond Island;

There is currently no supplier for manufacturing timber roof trusses operating in the Torres Strait, with all trusses being supplied from mainland suppliers in Cairns or other southern centres;

Council wishes to establish a manufacturing plant on Hammond Island to manufacture timber trusses that will match industry quality standards, to provide employment and training opportunities for community members, to supply timber trusses for new houses constructed in the Torres Strait;

Council anticipates that if a truss manufacturing plant is established on Hammond Island that can produce quality products to supply trusses for new houses, a potential demand may also arise to supply trusses to the Northern Peninsula and Torres Shire communities;

The establishment of a truss plant on Hammond Island provides employment and training for a small number of residents due to the limited market catchment. It would be possible to operate the workshop with a minimum of three employees comprising of a workshop manager responsible for; management of the truss plant, marketing, and the training of say two apprentices;

A new building would be required to accommodate the equipment possibly located between the existing vehicle workshop and the building identified for the cabinet workshop;

Capital costs for the establishment of a truss plant on Hammond Island are likely to be in the order of:

Supply and installation of new building and office $328,500; Supply and installation of equipment including training $173,750; Upgrade Ergon supply (Allowance) $ 20,000; Office Fit-out $ 5,000; Upgrade staff amenities (Shared with cabinet workshop) $ 2,500; Project Management Professional Fees $ 25,000; Contingency allowance $ 50,000. Total Estimated Capital Costs $604,750

The business management models are the same as for the establishment of the cabinet workshop outlines in Part A i.e.


To enable apprentices to be trained it will be necessary to recruit and retain a trade qualified person with appropriate truss manufacturing experience, to manage the truss plant, train apprentices, and undertake marketing;

The analysis undertaken indicates that the establishment of a truss plant to manufacture timber trusses for 50 houses per year is not profitable.

Table of Contents Executive Summary – Part A - Cabinet Workshop 3 Executive Summary - Part B - Truss Plant 4 Part A - Cabinet Workshop 7 1.0 Introduction 7 2.0 Scope of Works 7 3.0 Assumptions 7 4.0 Site Investigations 8 5.0 Justification for a Cabinet Workshop 9 5.1 Background 9 5.2 Historic Demand 9 5.3 Future Demand 9 5.4 Sustainable Employment 9 6.0 Ecologically Sustainable Development 9 7.0 Economic and Regional Development 10 8.0 Enterprise Management 10 8.1 Overview 10 8.2 Option 1 - Operated under TSIRC Building Services Unit 10 8.3 Option 2 – Operated as a Separate TSIRC Business 11 8.4 Option 3 - Operated as a TSIRC/Partnership Joint Venture 11 8.5 Option 4 - Operated as a Private Business 12 9.0 Workshop Establishment 12 9.1 Planning Scheme Provisions 12 9.2 Access to Services 13 9.3 Building and Services Upgrade Requirements 13 9.4 Plant and Machinery Requirements 13 9.5 Quality Assurance 13 10.0 Workforce Requirements 14 10.1 Existing Skills Base 14 10.2 Required Skills Base 14 10.3 Training of Apprentices 14 11.0 Financial Modelling 14 11.1 Overview 14 11.2 Capital Costs 15 11.3 Annual Depreciation and Fixed Costs 15 11.4 Annual Variable Costs 17 11.5 Total Annual Operating Costs 17 11.6 Trade Ratios for Cabinet Works 18 12.0 Land Tenure Issues 19 13.0 Conclusions – Cabinet Workshop 19 Part B - Truss Plant 21 1.0 Scope of Works 21 2.0 Site Investigation 21 3.0 Assumptions 21 4.0 Justification for a Truss Plant 21 4.1 Background 21 4.2 Historic Demand 22 4.3 Future Demand 22

4.4 Sustainable Employment 22 5.0 Enterprise Management 22 6.0 Truss Plant Establishment 22 6.1 Planning Scheme Provisions 22 6.2 Access to Services 23 6.3 Building Requirements 23 6.4 Quality Assurance 24 7.0 Workforce Requirements 24 7.1 Existing Skill Base 24 7.2 Required Skill Base 24 7.3 Training of Apprentices 24 8.0 Financial Modelling 24 8.1 Overview 24 8.2 Capital Costs 25 8.3 Depreciation and Fixed Costs 25 8.5 Variable Costs (31 Houses per Year) 27 8.6 Total Operating Costs (31 Houses per Year) 27 8.7 Variable Costs (51 Houses per Year) 28 8.8 Total Operating Costs (51 Houses per Year) 28 9.0 Conclusions – Truss Plant 29 Part C – Marketing Plan and Implementation Plan 30 1.0 Marketing Plan 30 1.1 Introduction 30 1.2 Key Stakeholders 30 1.3 SWOT Analysis 30 1.4 Business Competitiveness 30 1.5 Branding 31 1.6 Product Pricing 31 1.7 Administration and Control 31 1.8 Marketing 31 2.0 Implementation Plan 32

Appendices Appendix A - Attachments

Google Image of Hammond Island



Part A - Cabinet Workshop 1.0 Introduction Cardno (Qld) Pty Ltd has been commissioned by the Torres Strait Island Regional Council (following a consultancy public procurement process), to prepare a Feasibility Study for the establishment of a Cabinet Workshop on Hammond Island using an existing building. The proposed establishment of a cabinet workshop on Hammond Island forms part of the Council’s capacity building approach to provide employment opportunities for local residents and reduce the Council’s need to outsource the supply of fit-out cabinet products to mainland suppliers, usually from Cairns. Joinery products produced from the workshop would be used by the Council’s Building Services Unit responsible for maintaining buildings and houses in the Torres Strait Island communities administered by the Council. Hammond Island is located approximately 15 minutes by ferry from Thursday Island and has a population of approximately 220 persons. Thursday Island is provided with a daily air services from Cairns to Horn Island with all materials delivered by sea twice weekly from Cairns. Delivery of materials to the Torres Strait Islands is carried out once a week from Horn Island. Employment opportunities on Hammond Island are limited to employment provided by the Torres Strait Island Regional Council and statutory service providers.

2.0 Scope of Works The consultancy brief for the development of the Feasibility Study required the following elements to be addressed in the study:

Executive summary; Ecologically sustainable development; Economic and Regional development; Use of local labour; Occupational health and safety; Industrial relations; Access to services; Consumer interest; Business competitiveness; Efficient allocation of resources; and Marketing.

3.0 Assumptions This Feasibility Study for the establishment of a Cabinet Workshop on Hammond Island, has been prepared by Cardno (Qld) Pty Ltd (Cardno) for the Torres Strait Island Regional Council, and may only be used and relied on by the Torres Strait Island Regional Council.

The Feasibility Study may only be used as a high level assessment of the options, estimated demand, and likely costs to establish a Cabinet Works on Hammond Island.

The services undertaken by Cardno are limited to the elements defined under the Scope of Works in Clause 2.0 above.

The Study does not include: Historic data of actual volumes and details of cabinet products used by the Torres Strait Regional

Council in previous years; Actual costs to refurbish and extend the existing building, and to purchase, deliver, and install

machinery on site on Hammond Island, which can only be determined after a suitable design for the cabinet works is prepared and tenders invited for refurbishment and extension works, and for the supply, delivery, installation, and commissioning of the machinery on site;

Actual future costs for the supply of raw materials to site on Hammond Island; Actual cost of purchasing and installation of any second hand machinery (If any).

The opinions, conclusions, and recommendations included in the Feasibility Study are based on the assumptions outlined in this clause.



Estimates of cost for capital works required to establish the cabinet works are included in Clause 11.2 on page 15.

4.0 Site Investigations Mr Gary Jensen, a Senior Project Manager of Cardno (Qld) Pty Ltd, visited Cairns, Thursday Island, and Hammond Island on Wednesday 22nd, Thursday 23rd, and Friday 24th October 2014 to hold discussions with elected Council representatives, various Council personnel, and to inspect proposed facilities on Hammond Island.

Discussions were held with the following Council personnel;

Manager Financial Services Andrew Hay; Acting Chief Financial Officer Melissa Barmettler; Councillor for Hammond Island Mario Sabatino; Mayor Fred Gela (Briefly); CEO Dania Ahwang; Manager Corporate Services Chris McLaughlin (Via video link); Manager Performance and Advocacy Katherine Wiggins.

During the visit to Hammond Island Councillor Mario Sabatino provided background information on the Council’s objectives for the establishment of a cabinet works, and identified the proposed building that could be used for the cabinet works.

The following photographs show the existing building located in the “Council Compound”, which is identified as Lot 501 on the Hammond Island Sustainable Land Use Plan, dated 18 August 2010. Camp facilities and Amenities for the workforce are located on the adjoining Lot 502. Both lots are identified as zoned for Community purposes.

Existing Building Identified for Workshop Exterior of Existing Building

Exterior of Building Showing Available Area for Extension Interior of Building



Observations during the site inspection indicate that the existing building identified for use as the cabinet workshop is too small, and will require to be extended and upgraded to accommodate the required machinery, and to comply with workplace health and safety requirements.

The size of the extension required is approximately 7 m x 7 m. excluding a small office.

5.0 Justification for a Cabinet Workshop 5.1 Background There is currently no local manufacturer of cabinet products operating in the Torres Strait. Cabinet products when needed, are supplied from Cairns or other southern suppliers.

Construction time in the Torres Strait for new projects is predominately undertaken during the dry season due to transport constraints/delays on the supply of materials by barge from Cairns during the wet season, due to climatic conditions. The establishment of a cabinet workshop on Hammond Island has the potential to provide a more reliable supply of products during the wet season and throughout the year.

The Torres Strait Island Regional Council proposes to establish a cabinet workshop on Hammond Island to produce cabinet products that will meet industry quality standards to provide employment and training opportunities for community members and to provide Council with a reliable source of supply of products for use in the maintenance of buildings and the social housing stock.

5.2 Historic Demand Council has indicated that they expend $557,592 inclusive of GST but excluding freight costs, from November 2013 to November 2014 to purchase cabinet products from southern suppliers for use in the maintenance of building and houses in the Torres Strait Island communities administered by the Council.

The Council has provided details of the costs and cabinet products purchased by the Building Services Unit comprising of 225 individual orders varying in value from $55.00 to $8,794.00. The average value was $2,478.19 including GST and the mean $1,320.00. Details of cabinet products were provided for seven houses to assist in the preparation of the Feasibility Study.

5.3 Future Demand The Council is likely for the foreseeable future to have a continuing role in the maintenance of buildings and the social housing stock, subject to entering into acceptable financial agreements with the Department of Public Works to undertake maintenance works of social housing, and for the delivery of new housing, under the National Partnership Agreement on Remote Indigenous Housing (NPARIH). The Agreement was signed in 2008 between the Commonwealth of Australia and the State Governments and Territories for an expenditure of approximately $5.5 billion over ten (10) years on housing and infrastructure. The Agreement will terminate in 2018.

In addition there is an opportunity to expand production to supply cabinet products to the Northern Peninsula Area communities, and the Torres Shire Council communities.

5.4 Sustainable Employment The establishment of a cabinet workshop on Hammond Island to manufacture cabinet products provides employment and training for a relatively small number of Hammond Island residents due to the limited market catchment. It would be possible to operate the plant with a minimum of three employees comprising of a plant manager (responsible for the management of the cabinet workshop, marketing, and the training of apprentices), and two apprentices.

6.0 Ecologically Sustainable Development The design, establishment, and operation of a cabinet workshop on Hammond Island needs to be implemented in a manner that addresses the objectives of the National Strategy for Ecologically Sustainable Development (ESD).



Ecologically Sustainable Development may be defined as “Using, conserving, and enhancing the community’s resources so that ecological processes, on which life depends, are maintained, and the total quality of life, now and in the future, can be increased.”

The core objectives of Environmentally Sustainable Development are:

To enhance individual and community well-being and welfare by following a path of economic development that safeguards the welfare of future generations;

To provide for future equity within and between generations; and To protect biological diversity and maintain essential ecological processes and life-support systems.

The reuse of an existing building for the establishment of the cabinet workshop addresses the first ESD core objective. Workshop practices will need to address the handling and disposal of used chemical containers, and the disposal of off-cut waste materials from the manufacturing process, at the Council’s waste disposal site, to address the third ESD core objective.

7.0 Economic and Regional Development The Torres Strait Island Regional Council’s website advises that one of the Council’s biggest aspirations is to assist wherever possible with the development of the Torres Strait economy. However there are limited commercial opportunities available to Council to achieve sustainable business development on the islands.

To achieve economic development on the various islands Council’s strategy is to:

Act upon regional resources and to facilitate employments opportunities; Encourage sustainable industries owned and operated by local residents; Facilitate access to capital and other opportunities to finance enterprises; and Actively pursue public/private partnerships to aid in service delivery.

The desire to establish a cabinet works on Hammond Island complements the Council’s objective to facilitate economic development in the region, to provide sustainable employment and to build community capacity.

The establishment of a local cabinet works transfers employee income and business profit margins from the production of cabinet works from Cairns to the Hammond Island community, thus contributing to local economic and regional development. It is estimated that the cabinet workshop would contribute in excess of $600,000 per annum to the Torres Strait economy, (For details refer to clause 11.5 on page 15).

8.0 Enterprise Management 8.1 Overview The Torres Strait Island Regional Council’s objective is to establish a cabinet workshop on Hammond Island to produce cabinet fit-out products that will meet industry quality standards to provide employment and training opportunities for local community members and to provide Council with a reliable source of supply.

The following models for ownership and operation of the cabinet workshop are listed in order of reducing financial returns and reducing risk profiles for Council.

8.2 Option 1 - Operated under TSIRC Building Services Unit Under this model the Council would own and operate the cabinet workshop under the control and management of the Council’s Building Services Unit. Council would need to be able to provide all finance required to set up and operate the cabinet works. Profits and losses from the operation of the cabinet workshop would be wholly retained by the Council.

The Council would provide the required technical expertise to manage, operate, and maintain the workshop and equipment, and would employ local Hammond Island labour.



Council would need to employ a trade qualified cabinet maker with an appropriate level of experience to; manage, operate, and train apprentices, and to undertake marketing with potential customers in the Northern Peninsula and Torres Shire Council areas.

The following table sets out the advantages and disadvantages of the Option 1 Model.

Advantages Disadvantages

Council retains full control of business enterprise; Control of marketing; Control of recruitment; Control of production to suit Council’s building

program; Retention of financial operating profits.

Council to provide funding for capital works and operations;

Staff time required to manage business; Staff time required to undertake business

accounting; Responsible for providing qualified

workshop manager to train apprentices; Risk of financial operating losses.

8.3 Option 2 – Operated as a Separate TSIRC Business This model is the same as the above option with the exception that the business would have a separate set of financial accounts within the Council’s accounting system and an independent Manager for the Business reporting directly to the Chief Financial Officer. The Council would provide all finance required to set up and operate the cabinet workshop. Profits and losses from the operation of the cabinet workshop would be wholly retained by the Council.

Works Orders would be provided for products from the Building Services Unit with payment undertaken as a transfer of funds between operating units within the Council’s financial accounting system.



Council retains full control of business enterprise; Control of marketing; Control of recruitment; Control of production to suit Council’s building program; Retention of financial operating profits.

Council to provide funding for capital works and operations;

Staff time required to undertake business accounting;

Responsible for providing qualified workshop manager to train apprentices;

Risk of financial operating losses.

8.4 Option 3 - Operated as a TSIRC/Partnership Joint Venture This model is the similar to Option 1 and Option 2 with the exception that the business is formed in partnership with an outside commercial supplier and would have a separate set of financial accounts within the Council’s accounting system and an independent Manager for the business. The Council in conjunction with the commercial partner would need to be able to provide all finance required to set up and operate the cabinet workshop. The building for the cabinet workshop would be leased from the Council.

There is no guarantee that a commercial partner could be identified and an acceptable Partnership Agreement negotiated, due to the likely limited annual turnover.

Profits and losses would be shared between the commercial partner and the Council.

The Council would need to enter into a legal Partnership Agreement with the Joint Venture Partner, in relation to the funding, management, and operation of the business.





Council provides funding to extend the existing building; Council only provides 50% of funding for the

establishment and operation of the business; Council receives income from leasing building; Council responsible for jointly recruiting qualified

workshop manager to train apprentices; Shared risk of funding financial operating losses.

May be difficult to find a joint venture partner;

Council shares management of business enterprise;

Council shares control of marketing; Council shares control of recruitment; Staff time required to undertake

business accounting; 50% retention of financial operating

profits. Council shares control of production

needed to suit Council’s building program.

8.5 Option 4 - Operated as a Private Business This model is for the establishment of a cabinet workshop as a separately owned and operated business. The business would lease the cabinet workshop building from the Council. Council would however need to extend the building, and upgrade the adjoining amenities buildings complex to comply with workplace health and safety requirements.

Accounting services could be provided to the business by Council, on a fee for service basis if Council considered that this would assist the establishment of a locally owned business.

It may be difficult for a local person establishing the business to borrow funding from financial institutions to fund the machinery required to establish the business, and for operating capital.



Council only provides funding for capital works to extend building;

Council receives income from leasing building; Council’s financial risk is limited to the loss of lease

income should the enterprise fail.

May be difficult to find person with sufficient skills and capital required to establish and operate the business;

Council has no control over the management of business enterprise;

Council has no control over marketing; Council has no control over recruitment; Council has no control of production

needed to suit Council’s building program.

9.0 Workshop Establishment 9.1 Planning Scheme Provisions The proposed cabinet workshop is to be located in an existing building which would need to be extended to accommodate the required machinery. The existing building is located on Lot 501 in Docherty Drive on Hammond Island, which is shown as land for “Community Purposes” under the “Local Government Infrastructure Plan” in the Torres Strait Island Regional Council Planning Scheme.

The use of the building as a “Cabinet Workshop” is likely to be exempt from Planning Scheme Assessment under the definition in Table 5.5.2 “Township Zone” of the Planning Scheme as a “Low Impact Industry” development.



A Development Approval Decision Notice however would require to be issued by a qualified Building Certifier under the Building Code of Australia, prior to commencement of extensions to the existing building.

The building works would require to address the Medium Bushfire Hazard” classification of land adjoining the site in the Planning Scheme

9.2 Access to Services The site is provided with the following utilities and other services:

Road access between the barge ramp and the proposed cabinet workshop building; Single phase electricity supply to the adjacent amenities buildings; Seaswift includes in their freight rates from Cairns to the Torres Strait a standard flat rate of delivery

to all islands including the cost of delivering freight between the barge and site.

9.3 Building and Services Upgrade Requirements The existing building is not large enough to accommodate required machinery. The building will require the following upgrade/refurbishment works to make it suitable for use as a cabinet workshop facility:

Detailed investigations during the design of the building and selection of machinery required for the workshop will determine if any upgrade of the capacity of the Ergon electricity supply to the site is required. Ergon electricity supply is provided to the adjoining parcel of land. It is normal for Ergon to require a separate supply to each parcel of land;

Provision of consumers mains between the Ergon point of supply and the building; Extension of the building; Suitable internal and external lighting for the extended workshop; Electrical fit-out for machinery including new switchboard; Small office building; Telephone services which could be provided through the mobile phone network; Upgrade of adjoining staff amenities facilities.

Details of estimated costs for the above works are included in clause 11.2 on page 15

Note: During the site visit it was observed that the existing construction plant maintenance workshop is provided with a single phase underground electricity supply from the switchboard on the amenities building which is located on a separate parcel of land. This underground supply may not comply with Ergon supply regulations.

9.4 Plant and Machinery Requirements Plant and machinery required for the establishment of the cabinet workshop include:

A cabinet making panel saw and sliding table; A hot glue edge-bander; Dust extraction system from fixed machines; Drill press; Miscellaneous hand power tools (Chord-less drills, chord-less planers, chord-less angle grinders) Packing table; Works completed racks; Office fit-out

Details of estimated costs for machinery are included in clause 11.2 on page 15

9.5 Quality Assurance Cabinet and joinery products manufactured in the workshop will need to meet industry quality standards and customer specified requirements. (E.g. Department of Works Social Housing Specifications for cabinet fit-out products).



The most reliable method of maintaining quality is through workshop tool-box meetings, ongoing site skills transfer, the formal training of employees, and workshop management practices.

10.0 Workforce Requirements 10.1 Existing Skills Base It is understood that there are currently no trade qualified Cabinet Makers employed by the Torres Strait Island Regional Council.

10.2 Required Skills Base The successful operation of the cabinet workshop and the training of Apprentices requires the employment of a manager who is trade qualified and experienced in manufacturing cabinet fit-out products.

The following summary briefly sets out the required skills for the various members of the workshop team:

Workshop Manager: The workshop manager will require to be trade qualified to be able to undertake the training of apprentices, and to manage the operation of cabinet workshop. In additions the workshop manager will require skills in the management of staff, marketing, and financial management, and cost control.

Apprentices: Apprentices would work under the direction of the trade qualified workshop manager and undertake their formal trade training through a Registered Training Organisation (RTO) possibly TAFE North.

10.3 Training of Apprentices Apprentices would undertake their formal course training through a Registered Training Organisation (RTO) such as TAFE. The closest RTO delivering Certificate 111 in Cabinet Making (LMF32109, or MSF3113) is TAFE North with campuses in Cairns, Townsville, and a training facility on Thursday Island.

Discussions with TAFE officers indicate that block training could be delivered at the TAFE Campus on Thursday Island or at the cabinet works on Hammond Island. This may be beneficial to the apprentices.

TAFE may request the payment of the airfare for the trainer to deliver block training in the Torres Strait.

If apprentices are required to travel to Cairns or Townsville for block training, the cost of airfares would be refunded, and an accommodation subsidy of $27 per day provided to apprentices.

Course Fees to the value of $9,490 per year per student are provided to the RTO by the Commonwealth. There may be an additional fee charged per apprentice depending on the RTO delivering the training.

11.0 Financial Modelling 11.1 Overview

This financial analysis has been prepared in accordance with general accounting practices. The model parameters address the following:

Capital costs; Depreciation and fixed costs; Variable costs; Total operating costs; and Trade rations.

Capital costs have been based on an opinion of likely cost to purchase, deliver, install, and commission the plant based on best available information;

Depreciation Costs have been based on the Australian Taxation Office (ATO) allowable depreciation schedules;



Fixed and maintenance costs have been based on the likely staff salaries and other costs, and a high level estimation of maintenance costs for plant and machinery; Variable cost include the cost of electricity, and the supply of materials to Hammond Island which has been based on estimated demand for materials based on information supplied by Council.

All figures derived in this report are based on the average costs and materials requirements taken from the details provided for the seven houses, extrapolated to seventy houses and 100 minor renovations per annum.

11.2 Capital Costs

The following table of likely capital costs has been prepared on available information. The actual capital cost for the establishment of the cabinet workshop will need to be verified through the development of a workshop layout, discussion with Ergon, and a tender procurement, and construction process.

Item Description Estimated Cost

1 Extend and refurbish workshop building $ 55,000 2 Upgrade Ergon electricity supply if required (Allowance) $ 20,000 3 New service pole and underground consumers mains $ 6,000 4 On site electrical works including main switchboard $ 15,000

5 Supply and install panel saw and sliding table including dust extraction equipment $ 13,500

6 Supply and install hot glue edge-bander including dust extraction equipment $ 18,250

7 Supply and install drill press $ 5,750

8 Supply chord-less tools $ 2,500

9 Supply and install air compressor $ 3,000

10 Supply and install work benches $ 1,500

11 Supply and install raw materials and finished products racking units $ 3,000

12 Supply and install prefabricated office building $ 15,000

13 Supply and install office furniture $ 2,500

14 Supply and install air conditioning unit to office $ 2,500

15 Supply and install fit out upgrade to lunch room (Allowance) $ 2,500 16 Professional fees (Implementation) $ 25,000 17 Contingency allowance $ 25,000 Total Likely Capital Cost Excluding GST $216,000

11.3 Annual Depreciation and Fixed Costs

The useful life for each item of plant and equipment has been derived from the Australian Taxation office (ATO) Ruling TR-2014/4 for “Furniture and Other Manufacturing Plants”.

Fixed costs include Building and Contents, Public Liability, and WorkCover Insurances, machinery maintenance, accounting, and office consumables. The following table sets out annual depreciation and fixed costs allowances for each business formation option.



Item Description Capital Cost

ATO Dep. Rate (Yrs.)

Option 1 Part of TSIRC Building Services

Unit. Annual

Depreciation and Fixed

Costs

Option 2

Separate TSIRC

Business. Annual


Costs

Option 3

TSIRC Joint Venture. Annual


Costs

Option 4

Privately Owned

Business. Annual


Costs

Depreciation

1 Workshop building, & extension $115,000 33 $ 3,485 $ 3,485 $ 0 $ 0

2 Electrical Consumers mains $ 6,000 40 $ 150 $ 150 $ 0 $ 0

3 Electrical fit out $ 15,000 20 $ 750 $ 750 $ 750 $ 750

4 Portable Office Building $ 15,000 5 $ 3,000 $ 3,000 $ 0 $ 0

5 Panel saw and sliding table incl. dust extraction $ 13,500 13.33 $ 1,013 $ 1,013 $ 1,013 $ 1,013

6 Edge-bander $ 18,250 13.33 $ 1,369 $ 1,369 $ 1,369 $ 1,369 7 Drill press $ 5,750 13.33 $ 431 $ 431 $ 431 $ 431 8 Chord-less tools $ 2,500 13.33 $ 188 $ 188 $ 188 $ 188 9 Air compressor $ 3,000 13.33 $ 225 $ 225 $ 225 $ 225

10 Raw materials and finished products racks $ 3 ,000 13.33 $ 225 $ 225 $ 225 $ 225

11 Work benches $ 1,500 13.33 $ 113 $ 113 $ 113 $ 113 12 Air conditioning (Office) $ 2,500 10 $ 250 $ 250 $ 250 $ 250 13 Office furniture $ 2,500 15 $ 166 $ 166 $ 166 $ 166

Sub Total Depreciation $11,365 $11,365 $ 4,730 $ 4,730

Fixed Costs

13 Upgrade of Ergon electricity supply (Expensed in 1st year) $ 20,000 $ 0 $ 0 $ 0 $ 0

14 Building Insurance allow 1.25% $136,000 $ 1,700 $ 1,700 $ 0 $ 0

15 Equipment insurance allow 2.0% $ 32,500 $ 650 $ 650 $ 650 $ 650

16 Lease of premises (7.5% return on borrowed funds) $ 0 $ 0 $20,000 $20,000

17 Interest and redemption on borrowed funds for capital works $14,500 $14.500 $ 0 $ 0

18 Maintenance of plant and equipment (Allowance) $ 2,500 $ 2,500 $ 2,500 $ 2,500

19 Office consumables and phones $ 2,000 $ 2,000 $ 2,000 $ 2,000 20 Workshop Manager salary say $ 55,000 $55,000 $55,000 $55,000 $55,000

21 Accommodation subsidy say $500 per week $ 25,000 $25,000 $25,000 $25,000 $25,000

22 Apprentices (2 x No) $ 50,000 $50,000 $50,000 $50,000 $50,000 23 Superannuation 9.5% $105,000 $ 9,975 $ 9,975 $ 9,975 $ 9,975 23 Payroll Tax 4.75% $ 0 $ 0 $ 0 $ 0 24 Workers Compensation Ins. $ 1,260 $ 1,260 $ 1,260 $ 1,260 25 Apprentice block training costs $ 5,100 $ 5,100 $ 5,100 $ 5,100 26 Accounting 4 hrs/wk @ $95/hr $20,000 $20,000 $20,000 $20,000 $20,000

Sub Total Fixed Costs $187,685 $187,685 $191,485 $191,485

Depreciation + Fixed Costs Excl. GST $199,050 $199,050 $196,215 $196,215

Year 1 Depreciation + Fixed Costs Excl. GST $219,050 $219,050 $216,215 $216.215

Notes:

1) Year 1 Depreciation and Fixed Costs include an allowance of $20,000 to upgrade the Ergon electricity supply to the site if required;



2) Staff remuneration is based on the Joinery and Building Trades Award provisions; 3) Apprentices who have signed a Training Contract are exempt from Payroll Tax provisions; 4) Local Government employees are exempt from Payroll Tax provisions; 5) As a small separate business with less than $1.1 million in wages the business is exempt from Payroll Tax provisions; 6) Apprenticeship block training costs are based on airfares for the TAFE trainer to deliver the training on Thursday Island

or Hammond Island; 7) If block training is delivered in either Cairns or Townsville the apprentices will receive free air travel and a $27 per day

accommodation allowance, and airfares for the trainer will not be applicable ; 8) Depreciation allowances have been calculated on the basis of full development cost with no residual value at the end of

the plant life depreciation period. (Worst case scenario).

11.4 Annual Variable Costs

Annual variable costs are dependent on the actual quantum of cabinet works manufactured in a single year. For comparative purposes the following table is based on the estimated quantities of cabinet products purchased by Council during 2013 – 2014.

Council placed a total of 225 purchase orders with suppliers between Nov 2013 and Nov 2014 at an average supply cost of $2,478.19 incl. GST and a mean cost of $1,320.00 incl. GST.

The quantities of materials in the following table has been derived from an analysis of a limited sample of seven orders placed with Cairns suppliers for cabinet works for house upgrades undertaken by the Torres Strait Island Regional Council and from advice from Council officers.

Item Description Unit Quantity Rate Amount

Variable Costs

1 Electricity (Allow machinery running for 50% of time) Item $ 4,500

2 Telephone calls (Allow $150/month) Item $ 1,800

3 16 mm Melamine board (2.4 m x 1.2 m) Sheets 1250 $40 $ 50,000

4 32 mm Bench tops (3.6 m x 0.75 m) Sheets 135 $650 $ 87,750

5 Cupboard hinge sets No 1000 $15 $ 15,000

6 Edge strip (10 m rolls) No 875 $12 $ 10,500

7 Bubble Packing Swap (1.5 m x 10 m rolls) Rolls 250 $25 $ 6,250

8 Polyethylene waterproof wrapping for transport (2 m x 50 m) Rolls 150 $85 $12 ,750

9 General purpose packing tape Rolls 150 $7.50 $ 1,125

10 Pallets/crates No 70 $150 $ 10,500

11 Freight to Hammond Island (Raw materials) m3 100 $495 $ 49,500

12 Freight from Hammond Island to outer islands m3 100 $195 $ 19,500

Total Variable Costs $269,175

The above materials schedule allows for the refurbishment of seventy kitchens and one hundred minor renovations and include a materials wastage allowances of 15%.

11.5 Total Annual Operating Costs

Total annual enterprise operating costs are made up of depreciation, fixed costs, variable costs, and profit margin excluding capital costs, and GST, are summarised in the following table.



Item Description

Option 1 Option 2 Option 3 Option 4 Part of TSIRC

Building Services

Unit.

Separate TSIRC

Business. TSIRC Joint

Venture.

Privately Owned

Business.

1 Depreciation $ 11,365 $ 11,365 $ 4,730 $ 4,730

2 Fixed costs $ 187,685 $ 187,685 $ 191,485 $ 191,485

3 Variable costs $269,175 $269,175 $269,175 $269,175

Sub Totals $468,225 $468,225 $465,390 $465,390

4 Gross pre-tax profit margin say 25% $117,056 $117,056 $116,347 $116,347

Total Operating Cost $585,281 $585,281 $581,737 $581,737

5 GST $ 58,528 $ 58,528 $ 58,174 $ 58,174

6 Less GST rebate on input materials $ 26,918 $ 26,918 $ 26,918 $ 26,918

Hammond Island Workshop. Total Including GST $616,891 $616,891 $612,993 $612,993

7 Comparative current expenditure on cabinet products excluding freight and including GST $557,592

8 Estimated freight @ $495/m3 + GST $77,000

Cairns Suppliers. Total Including GST $634,592

The above analysis indicates that there is a positive impact of establishing a cabinet workshop on Hammond Island providing the following economic benefits:

Employment of a cabinet workshop manager injecting an additional $80,000 into the local economy;

Employment of two apprentices injecting an additional $50,000 into the local economy; Generate an estimated annual profit to Council in the order of $117,000; Provide a saving of approximately $18,000 on current annual supply cost per annum based on

the above figures; Gross economic benefit to the Torres Strait economy is in excess of $600,000 per annum.

The true cost of materials required can only be determined by undertaking a detailed analysis of all orders place between November 2013 and November 2014. The establishment of a cabinet workshop provides the opportunity for workshop staff (with additional staff) to carry out the installation of the cabinet products on site, which forms part of the training of an apprentice cabinet maker. The analysis has made no allowance for additional orders for cabinet products being obtained from communities in the Northern Peninsula area and the Torres Shire communities.

11.6 Trade Ratios for Cabinet Works

The Rawlinsons Australian Construction Handbook provides the following approximate trade ratios as a guide for determining the proportion of labour, materials, and plant, required for the manufacture and installation of joinery (cabinet) works.

Trade Rations – Joinery Works

Trade Labour

Materials Plant Off Site On Site

Joinery (Cabinet Works) 10 % 30 % 60 % 0 %



The above approximate ratios indicate that the flat pack cabinet products delivered to site would represent approximately 70% of the total installed cost of cabinet products on a project.

An analysis of the total value of cabinet products obtained from Cairns suppliers between November 2013 and November 2014 by the Council, provides the following generic break up of costs based on the Rawlinsons’ ratios:

Total value of products supplied from Cairns incl. GST but excl. freight: $557,592 Less GST $ 50,690 Less assumed Gross Profit Margin of say 25% $126,725 Nett cost of materials and labour for factory component $380,177 Materials component 60% of the 70% off-site cost $325,866 Off-site labour component 10% of the 70% off-site cost $ 54,311

A comparison of the above generic trade ratio analysis with costs derived from first principles in Clauses 11.3 and 11.4 above provides:

Materials component excluding freight and GST $200,175 (Clause 11.4 Items 1-10 inclusive) Off-site labour component $146,335 (Clause 11.3 Items 20-25 inclusive)

12.0 Land Tenure Issues A cabinet works business operated by an entity other than Council that wishes to operate from an existing Council building at Hammond would need to lease the building from Council under the Aboriginal Land Act 1991 (Qld). If the entity seeks a lease of over ten (10) years, the entity must make a Development Application for Reconfiguration of a Lot under the Sustainable Planning Act 2009 (Qld), to be assessed by Council. Council (as the Trustee of the Hammond Island Deed of Grant in Trust) would also need to approve the lease. Native Title considerations must also be given under the Native Title Act 1993 ((Cth) in light of the Native Title claim pending on Hammond Island for both the lease and any new construction thereon.

Where Council was to operate the cabinet works in its own right, a lease of the premises and associated Development Application would not be required. Any increased footprint of the premises may require Cultural Heritage and Native Title validation however.

13.0 Conclusions – Cabinet Workshop Annual demand for joinery products purchased by the Council from external mainland suppliers

Is advised as $557,592 between November 2013 and November 2014, including GST but excluding the cost of freight between Cairns and the individual islands;

Capital costs requirements to establish the workshop are likely to be in the order of:

Refurbish and extending the existing building $ 93,500; Supply and install equipment $ 47,500; Upgrade Ergon supply (Allowance) $ 20,000; Office Fit-out $ 2,500; Upgrade staff amenities (allowance) $ 2,500; Professional Fees $ 25,000; Contingency Sum $ 25,000; Total capital costs to establish workshop $216,000 excl. GST



The building identified to accommodate the workshop is to small and will require extension;



To enable apprentices to be trained as cabinet makers it will be necessary to recruit and retain a trade qualified cabinetmaker with appropriate experience to manage the workshop and train the apprentices;

Formal apprentice block training may be able to be delivered on Thursday Island or at the workshop on Hammond Island through TAFE North;

The gross economic benefit to the Torres Strait economy from the establishment of a cabinet workshop on Hammond Island is in excess of $600,000 per annum;

No allowance has been made in the analysis for income from additional orders that me be obtained for cabinet products from the Northern Peninsula area and the Torres Shire Communities;

The determination of the value of materials (variable costs) requires a detailed analysis of the 225 orders placed between November 2013 and November 2014 which is beyond the scope of this Feasibility Study. However the allowances included in the feasibility study for variable costs are considered to be conservative.



Part B - Truss Plant

1.0 Scope of Works The scope of works for Part B is to investigate the feasibility and likely cost of establishing a timber truss manufacturing plant on Hammond Island to provide economic development and to provide employment and training opportunities for residents.

2.0 Site Investigation Mr Gary Jensen, a Senior Project Manager of Cardno (Qld) Pty Ltd, visited Cairns, Thursday Island, and Hammond Island on Wednesday 22nd, Thursday 23rd, and Friday 24th October 2014 to hold discussions with elected Council representatives, various Council personnel, and to inspect proposed facilities on Hammond Island for the establishment of a cabinet workshop.

A clear site was identified for a truss plant located between the existing vehicle workshop and the proposed building identified for the cabinet workshop.

3.0 Assumptions This Feasibility Study for the establishment of a Truss Plant on Hammond Island, has been prepared by Cardno (Qld) Pty Ltd (Cardno) for the Torres Strait Island Regional Council, and may only be used and relied on by the Torres Strait Island Regional Council. The Feasibility Study may only be used as a high level assessment of the options, estimated demand, and likely costs to establish a Truss Plant on Hammond Island. The Report does not include: Historic data of actual volumes and details of cabinet products used by the Torres Strait Regional

Council in previous years; Actual costs to construct a new building, and to purchase, deliver, and install machinery on site on

Hammond Island, which can only be determined after a suitable design for the truss plant is prepared and tenders invited for the works, and for the supply, delivery, installation, and commissioning of the machinery on site;

Actual future costs for the supply of raw materials to site on Hammond Island; Actual cost of purchasing and installation of any second hand machinery (If any).

The opinions, conclusions, and recommendations included in the Feasibility Study are based on the assumptions outlined in this clause.

4.0 Justification for a Truss Plant 4.1 Background There is currently no local manufacturer of timber roof trusses operating in the Torres Strait. Roof trusses when needed, are supplied from Cairns or other southern suppliers.

Construction time in the Torres Strait for new projects is predominately undertaken during the dry season due to transport constraints/delays on the supply of materials by barge from Cairns during the wet season, due to climatic conditions. The establishment of a truss plant on Hammond Island has the potential to provide a more reliable supply of products during the wet season and throughout the year.

The Torres Strait Island Regional Council wishes to establish a truss plant on Hammond Island to produce timber roof trusses that will meet industry quality standards to provide employment and training opportunities for community members and to provide a reliable source of supply of trusses for use in the construction of new social housing stock.



4.2 Historic Demand Demand for timber roof trusses in the Torres Strait is driven by the construction of social housing and agency housing which varies from year to year. Mr Geoff Prior of the TSIRC advised that over the last two years from the beginning of 2013 to November 2014 the Council has not constructed any new social housing.

4.3 Future Demand The Council will have a continuing role in the maintenance of existing dwellings and the construction of new dwellings in the Torres Strait island communities, subject to entering into acceptable financial agreements with the Department of Housing and Public Works (DHPW).

The Council has been awarded a contract by the DHPW for the construction of thirteen (13) new social houses during 2014-2015. The Department has further advised that a further 73 social houses are to be constructed in the Torres Strait communities between the end of 2014 and June 2016. The 73 houses does not include any additional social houses that may be delivered to the Northern Peninsula Area communities which could perhaps be another 20 houses.

4.4 Sustainable Employment The establishment of a truss plant on Hammond Island to manufacture timber trusses provides employment and training for a relatively small number of Hammond Island residents due to the limited market catchment. It would be possible to operate the plant with a minimum of three employees comprising of a plant manager responsible for the management of the truss plant, marketing, and the training of two apprentices.

5.0 Enterprise Management The Torres Strait Island Regional Council’s objective is to establish a truss plant on Hammond Island to produce timber roof trusses that will meet industry quality standards to provide employment and training opportunities for local community members and to provide Council with a reliable source of supply.


Operated under the TSIRC Building Services Unit; Operated as a separate TSIRC business reporting directly to the Chief Financial Officer; Operated as a joint venture with a supplier; Operated as a private business

Details of each of the management models are outlined in Clause 8 of Part A.

6.0 Truss Plant Establishment 6.1 Planning Scheme Provisions The proposed truss plant is to be located in a new building to be constructed between the existing vehicle maintenance workshop and the building identified for the cabinet workshop. The new building is located on Lot 501 in Docherty Drive on Hammond Island, which is shown as land for “Community Purposes” under the “Local Government Infrastructure Plan” in the Torres Strait Island Regional Council Planning Scheme.

The use of a new building as a “Truss Plant” is likely to be exempt from Planning Scheme Assessment under the definition in Table 5.5.2 “Township Zone” of the Planning Scheme as a “Low Impact Industry” development.

A Development Approval Decision Notice however would require to be issued by a qualified Building Certifier under the Building Code of Australia, prior to commencement of construction of the new building.

The building works would require to address the Medium Bushfire Hazard” classification of land adjoining the site in the Planning Scheme.



6.2 Access to Services The site is provided with the following utilities and other services:

Road access between the barge ramp and the proposed truss plant building; Single phase electricity supply to the adjacent amenities buildings; Seaswift includes in their freight rates from Cairns to the Torres Strait a standard flat rate of delivery

to all islands including the cost of delivering freight between the barge and site.

6.3 Building Requirements A new building is required measuring approximately 18 m x 14 m to accommodate the required machinery for manufacturing timber roof trusses. The building will require the following amenities to make it suitable for use as a roof truss manufacturing facility:

Possible upgrade of the Ergon electricity supply to the site (shared cost with cabinet workshop); Extension of electricity supply to the new building; Suitable internal and external lighting for the building; Electrical fit-out for machinery including new switchboard; Small office building (shared with the cabinet workshop); Telephone services which could be provided through the mobile phone network; Use of the adjoining staff amenities facilities (upgrade cost shared with the cabinet workshop).

The following photograph shows a typical arrangement of the type of equipment used in a truss manufacturing plant.



6.4 Quality Assurance Timber roof trusses manufactured in the new plant will need to meet industry quality standards and customer specified requirements. Truss designs will require RPEQ structural design certification to comply with Building Code of Australia (BCA) requirements.

The most reliable method of maintaining manufacturing quality is through workshop tool-box meetings, ongoing site skills transfer, the formal training of employees, and workshop management practices.

7.0 Workforce Requirements 7.1 Existing Skill Base It is understood that it is unlikely that there are any currently trade qualified personnel with truss manufacturing experience employed by the Torres Strait Island Regional Council.

7.2 Required Skill Base The successful operation of the truss plant and the training of employees/apprentices requires the employment of a manager who is trade qualified and experienced in manufacturing of timber roof trusses. The following summary briefly sets out the required skills for the various members of the truss plant team:

Workshop Manager: The workshop manager will require to be trade qualified to be able to undertake the training of any apprentices, and to manage the operation of truss plant. In additions the manager will require skills in the management of staff, marketing, and financial management, and cost control.

Apprentices: Apprentices would work under the direction of the trade qualified truss plant manager and undertake their formal trade training through a Registered Training Organisation (RTO).

7.3 Training of Apprentices Two suitable training courses are available for the training of apprentices:

FPI30511 Certificate 111 in Timber Manufactured Products. and FPI30911 Certificate 111 in Timber Truss and Frame Design and Manufacture.

Apprentices would undertake their formal course training through a Registered Training Organisation (RTO) delivering the particular course. Both courses are delivered by FITEC Australia Pty Ltd in Queensland. Training is delivered on site over 4 to 8 visits covering the entire course. Aboriginal and Torres Strait Islander apprentices, included under the “Priority Population Group” for training purposes, receive the full Australian Government course subsidy of $5,960.00. Total course fees are in the order of $7,000 per student less the training subsidy of $5960, plus travel and accommodation costs for the trainer.

Financial assistance may be available to apprentices under the Austudy and ABSTUDY programs, and loans assistance.

Where apprentices are required to travel for block training, travel and accommodation subsidies are available where students meet the funding guidelines.

8.0 Financial Modelling 8.1 Overview This financial analysis has been prepared in accordance with general accounting practices. The modelling parameters address the following:

Capital costs; Depreciation and fixed costs; Variable costs; and Total operating costs.



Capital costs have been based on an opinion of likely cost to purchase, deliver, install, and commission the plant based on limited available information; Depreciation Costs have been based on the Australian Taxation Office (ATO) allowable depreciation schedules; Fixed and maintenance costs have been based on the likely staff salaries and other costs, and a high level estimation of maintenance costs for plant and machinery; Variable cost include the cost of electricity, and the supply of materials to Hammond Island which has been based on estimated demand for materials based on information supplied by Council.

8.2 Capital Costs The following table of likely estimated capital costs has been prepared on limited available information. The actual capital cost for the establishment of the truss plant will need to be verified through the development of a plant layout, discussion with Ergon, design and documentation of the building, tender procurement and construction management.

Item Description Estimated Cost

1 Construct truss plant building approximately 18 m x 14 m $285,000 2 Upgrade Ergon electricity supply if required (Shared allowance) $ 20,000 3 New property pole and underground consumers mains (Shared allowance) $ 6,000 4 On site electrical works including main switchboard $ 20,000

5 Supply to site “Clinka Press” $ 14,000

6 Supply to site “Combo Jig” and “Portal Gantry Press” $115,000

7 Supply to site Compound Mitre saw $ 1,250

8 Supply chord-less tools (allowance) $ 2,500

9 Supply and install air compressor $ 3,000

10 Supply and install work benches and materials trolley $ 5,000

11 Supply and install raw materials and finished products racks $ 3,000

12 Installation of equipment $ 15,000

13 Supply of software and training $ 15,000

14 Supply and install prefabricated office building (Shared allowance) $ 15,000

15 Supply and install office furniture and equipment (Shared allowance) $ 5,000

16 Supply and install air conditioning unit to office (Shared allowance) $ 2,500

17 Supply and install fit out upgrade to lunch room (Shared allowance) $ 2,500 18 Professional fees (Implementation) $ 25,000 19 Contingency allowance $ 50,000

Total Likely Capital Cost Excluding GST $604,750

8.3 Depreciation and Fixed Costs The useful life for each item of plant and equipment has been derived from the Australian Taxation office (ATO) Ruling TR-2014/4 for “Furniture and Other Manufacturing Plants”. Fixed costs include Building and Contents, Public Liability, and WorkCover Insurances, machinery maintenance, accounting, and office consumables. The following table sets out annual depreciation and fixed costs allowances for each business formation option.



Item Description Capital Cost

ATO Dep. Rate (Yrs.)

Option 1 Part of TSIRC Building Services

Unit. Annual


Costs

Option 2 Separate TSIRC

Business. Annual


Costs

Option 3 TSIRC Joint

Venture. Annual


Costs

Option 4 Privately Owned

Business. Annual


Costs

Depreciation

1 New truss plant building $325,350 33 $ 9,860 $ 9,860 $ 0 $ 0

2 Electrical Consumers mains $ 6,850 40 $ 170 $ 170 $ 0 $ 0

3 Electrical fit out $ 22,830 20 $ 1,140 $ 1,140 $ 1,140 $ 1,140

4 Portable office building (Shared) $ 17,125 5 $ 3,425 $ 3,425 $ 0 $ 0

5 Clinker Press $ 17,600 13.33 $ 1,320 $ 1,320 $ 1,320 $ 1,320 6 Combo Jig and Portal Gantry Press $144,500 13.33 $10,840 $10,840 $10,840 $10,840 7 Compound Mitre Saw $ 1,575 13.33 $ 120 $ 120 $ 120 $ 120 8 Chord-less tools $ 2,850 13.33 $ 215 $ 215 $ 215 $ 215 9 Air compressor $ 3,425 13.33 $ 255 $ 255 $ 255 $ 255

10 Raw materials & finished trusses racks $ 3 ,425 13.33 $ 255 $ 255 $ 255 $ 255 11 Work benches & materials trolley $ 5,700 13.33 $ 430 $ 430 $ 430 $ 430 12 Air conditioning (Shared office) $ 2,850 10 $ 285 $ 285 $ 285 $ 285 13 Office furniture (Shared) $ 5,700 15 $ 430 $ 430 $ 430 $ 430 14 Software and training $17,125 5 $ 3,425 $ 3,425 $ 3,425 $ 3,425

Sub Total Depreciation $32,170 $32,170 $18,715 $18,715

Fixed Costs per Year excluding Year 1

15 Upgrade of Ergon electricity supply (Expensed in 1st year) $ 20,000 $ 0 $ 0 $ 0 $ 0

16 Building Insurance allow 1.25% $390,000 $ 4,875 $ 4,875 $ 0 $ 0

17 Equipment insurance allow 2.0% $187,000 $ 3,740 $ 3,740 $ 3,740 $ 3,740 18 Lease of premises $ 0 $ 0 $52,000 $52,000

19 Interest and redemption on borrowed funds for capital works (30 yrs @ 6%) $604,750 $43,500 $43.500 $ 0 $ 0

20 Maintenance of plant and equipment (Allowance) $ 3,500 $ 3,500 $ 3,500 $ 3,500

21 Office consumables and mobile phones (allowance) $ 2,000 $ 2,000 $ 2,000 $ 2,000

22 Workshop Manager salary say $ 55,000 $55,000 $55,000 $55,000 $55,000

23 Accommodation subsidy say $500 per week $ 25,000 $25,000 $25,000 $25,000 $25,000

24 Apprentices (2 x No) $ 50,000 $50,000 $50,000 $50,000 $50,000 25 Superannuation 9.5% $105,000 $ 9,975 $ 9,975 $ 9,975 $ 9,975 26 Payroll Tax 4.75% $ 0 $ 0 $ 0 $ 0 27 Workers Compensation Insurance $ 1,260 $ 1,260 $ 1,260 $ 1,260 28 Apprentice block training costs say $ 5,000 $ 5,100 $ 5,000 $ 5,000 29 Accounting 4 hrs/wk @ $95/hr $20,000 $20,000 $20,000 $20,000 $20,000

Sub Total Fixed Costs $223,850 $223,850 $227,475 $227,475

Depreciation + Fixed Costs Excl. GST $256,020 $256,020 $246,190 $246,190

Year 1 Depreciation + Fixed Costs Excl. GST $276,020 $276,020 $266,190 $266.190



Notes:

1) Staff remuneration is based on the Joinery and Building Trades Award provisions; 2) Apprentices who have signed a Training Contract are exempt from Payroll Tax provisions; 3) Local Government employees are exempt from Payroll Tax provisions; 4) As a small separate business with less than $1.1 million in wages the business is exempt from Payroll Tax provisions; 5) Depreciation allowances have been calculated on the basis of full development cost with no residual value at the end of the plant

life depreciation period. (Worst case scenario); 6) Capital Costs under Depreciation include and allowance for Professional Fees and Contingency allowance pro rata; 7) Annual building lease payment has been calculated as rental at $95/m2 plus recovery of interest only on cost of building, excluding

machinery to be supplied by lessee.

8.5 Variable Costs (31 Houses per Year) Variable costs are dependent on the actual quantum of timber roof trusses manufactured in a single year. For analysis purposes the following table is based on the estimated quantities of roof trusses required for:

Current TSIRC contract 13 houses DHPW. Additional 73 houses over 2 years in Torres Strait communities. Say 50% 18 houses NPA and Torres Shire (No houses in analysis) 0 houses

Total budget 31 houses per year


Variable Costs 1 Electricity (Allow machinery running for 50% of time) Item $ 5,000 2 Telephone calls (Allow $150/month) Item $ 1,800 3 Supply of pine truss timber ( 90 x 38 MGP12) m 20,585 $3.35 $ 69,000 4 Supply of nail plate connectors No 14,700 $1.00 $ 14,700 5 Metal Packing Strapping ( 12.7 mm x 0.5 mm x 250 m) Rolls 10 $30 $ 300 6 Freight to Hammond Island on timber, connector plates etc. m3 80 $495 $ 39,600 7 Freight from Hammond Island to outer islands m3 295 $195 $ 57,600 Total Variable Costs ex GST $188,000

The above schedule includes a materials wastage factor of 15%.

8.6 Total Operating Costs (31 Houses per Year) Total enterprise operating costs are made up of depreciation, fixed costs, variable costs, and profit margin excluding capital costs, and GST, are summarised in the following table.

Item Description


Building Services

Unit.

Separate TSIRC


Venture.

Privately Owned

Business.

1 Depreciation $ 32,170 $ 32,170 $ 18,715 $ 18,715 2 Fixed costs $223,850 $223,850 $227,475 $227,475 3 Variable costs $188,000 $188,000 $188,000 $188,000 Sub Totals $444,020 $444,020 $434,190 $434,190

4 Gross pre-tax profit margin say 25% $111,000 $111,000 $108,550 $108,550 Total Operating Cost $555,000 $555,000 $542,740 $542,740

5 GST $ 55,500 $ 55,500 $ 54,275 $ 54,275



7 Comparative estimated expenditure on trusses supplied from Cairns excl. freight and including GST $167,600

8 Estimated freight 280 m3 @ $495/m3 + GST $146,000 Cairns Suppliers. Total Including GST $313,600



The above analysis indicates that establishing a truss plant on Hammond Island to provide trusses for 31 houses per year is not viable with a pre-tax 25% Gross Profit Margin.

No allowance has been included for orders for trusses for new houses that may be obtained from the Northern Peninsula area and the Torres Shire communities.

8.7 Variable Costs (51 Houses per Year) Variable costs are dependent on the actual quantum of timber roof trusses manufactured in a single year. For analysis purposes the following table is based on the estimated quantities of roof trusses required for:

Current TSIRC contract 13 houses DHPW. Additional 73 houses over 2 years in Torres Strait communities. 36 houses NPA and Torres Shire (No houses in analysis) 0 houses

Total budget 51 houses per year


Variable Costs

1 Electricity (Allow machinery running for 50% of time) Item $ 6,400

2 Telephone calls (Allow $150/month) Item $ 2,000

3 Supply of pine truss timber ( 90 x 38 MGP12) m 33,865 $3.35 $113,450

4 Supply of nail plate connectors No 24,175 $1.00 $ 24,175

5 Metal Packing Strapping ( 12.7 mm x 0.5 mm x 250 m) Rolls 17 $30 $ 510

6 Freight to Hammond Island on timber, connector plates etc. m3 125 $495 $ 61,875

7 Freight from Hammond Island to outer islands m3 485 $195 $ 94,575

Total Variable Costs ex GST $303,000

The above materials schedule includes a materials wastage factor of 15%.

8.8 Total Operating Costs (51 Houses per Year) Total enterprise operating costs are made up of depreciation, fixed costs, variable costs, and profit margin excluding capital costs, and GST, are summarised in the following table.

Item Description


Building Services

Unit.

Separate TSIRC


Venture.

Privately Owned

Business.

1 Depreciation $ 32,170 $ 32,170 $ 18,715 $ 18,715

2 Fixed costs $223,850 $223,850 $227,475 $227,475

3 Variable costs $303,000 $303,000 $303,000 $303,000

Sub Totals $559,000 $559,000 $549,200 $549,200

4 Gross pre-tax profit margin say 7.5% $ 41,925 $ 41,925 $ 41,190 $41,190

Total Operating Cost $600,925 $600,925 $590,390 $590,390

5 GST $ 60,100 $ 60,100 $ 59,050 $ 59,050



7 Comparative estimated expenditure on trusses supplied from Cairns excluding freight and including GST

$275,730

8 Estimated freight 460 m3 @ $495/m3 + GST $240,075

Cairns Suppliers. Total Including GST $515,800



The above analysis indicates that establishing a truss plant on Hammond Island to provide trusses for 51 houses per year is also not viable using a 7.5% pre-tax Gross Profit Margin.

Actual quotes for the supply of trusses ex Cairns have been used to determine the cost od trusses ex Cairns,

The cost of manufacturing roof trusses on Hammond Island has been based of the following data and assumptions:

Materials quantities used in the analysis for the manufacture of roof trusses, has been based on trusses purchased by the Council for Lot 70 Kada St, Boigu Island;

Materials costs have been based on typical prices quoted on the internet for the various materials; Freight costs from Cairns have been based on information supplied by Seaswift of Cairns.

9.0 Conclusions – Truss Plant Capital costs for the establishment of a truss plant on Hammond Island are likely to be in the order

of: Supply and installation of new building and office $328,500; Supply and installation of equipment including training $173,750; Upgrade Ergon supply (Allowance) $ 20,000; Office Fit-out $ 5,000; Upgrade staff amenities (Shared with cabinet workshop) $ 2,500; Project Management Professional Fees $ 25,000; Contingency allowance $ 50,000. Total Estimated Capital Costs $604,750

The business management models are the same as for the establishment of the cabinet workshop outlines in Part A;

To enable apprentices to be trained it will be necessary to recruit and retain a trade qualified person with appropriate truss manufacturing experience, to manage the truss plant, train apprentices, and undertake marketing;

The analysis undertaken indicates that the establishment of a truss plant on Hammond Island to manufacture timber roof trusses is not profitable at 51 houses per year using a minimum profit margin of 7.5%.



Part C – Marketing Plan and Implementation Plan

1.0 Marketing Plan 1.1 Introduction The successful outcome of establishing a cabinet works on Hammond Island is dependent on ongoing market to supply the Council’s Building Services Unit with required cabinet fit-out products for the maintenance of buildings and houses, and marketing the business to other key stakeholders to build additional demand over time.

1.2 Key Stakeholders Key stakeholders include:

The Torres Strait Island Regional Council; The Department of Aboriginal and Torres Strait Islander and Multicultural Affairs, (Program Office); Department of Housing and Public Works, (Office of Building and Asset Services); Department of Education; Other Departments delivering services to the Torres Strait Islands; Builders and contractors undertaking construction works in the Torres Strait and Northern Peninsula

area.

Marketing will need to be undertaken with the key stakeholders to promote the establishment of a cabinet works on Hammond Island and to determine likely demand over time.

1.3 SWOT Analysis The successful establishment and operation of a cabinet works on Hammond Island is subject to understanding and evaluating the business’ potential Strengths, Weaknesses, Opportunities, and Threats (SWOT analysis).

The following table sets out a likely SWOT evaluation for the establishment of the cabinet works on Hammond Island.

SWOT ANALYSIS

Strengths The only local supplier; Able to supply joinery products during wet season when

barge services from Cairns may be delayed during the wet season;

Able to set price below economical cost to deliver cabinet fit-out products from Cairns;

Local Indigenous owned business.

Opportunities Create local employment and training; Provides a source of income for Council; Reduces reliance of sourcing supply of joinery products

from Cairns; Can market to Northern Peninsula communities.

Weaknesses Will face increased price competition from Cairns suppliers; Need to recruit and retain an experienced trade qualified

workshop manager; Risk of failure.

Threats Availability of start-up capital; External training of suitable apprentices; Price competition from other external suppliers for large

projects.

1.4 Business Competitiveness A newly established cabinet workshop on Hammond Island will only face competition from suppliers located in Cairns. There are a number of joinery firms in Cairns supplying the local Cairns market, Cape York and the Torres Strait island communities.

The Cairns based suppliers will provide a ceiling on product prices delivered to the Torres Strait. However providing the cabinet workshop on Hammond Island can efficiently manufacture quality cabinet fit-out



products at a price equal to or slightly lower than the cost of products supplied from Cairns, and the Council supports the workshop, the business enterprise would be successful.

A workshop on Hammond Island will also have the opportunity of supplying cabinet fit-out products to the Northern Peninsula and Torres Shire Council communities.

1.5 Branding Suitable branding (naming) of the enterprise can play an important role in the marketing of joinery products, linking the business to the local people, and to the development of sustainable Indigenous business enterprises.

It will take time to build market reputation with the key stakeholders, which can only be achieved by producing quality products, and delivering the products at the time requested by the purchaser.

1.6 Product Pricing The maximum prices charged for various cabinet products produced on Hammond Island will basically be set by the price of similar products delivered from Cairns.

1.7 Administration and Control For the business to be successful there needs to be clear lines of communication, control of marketing, and the operation of the workshop. The Workshop Manager appointed must have the necessary skills to; undertake marketing of the business to key stakeholders, manage and operate the workshop, train employees, undertake financial control of materials used, product delivered, and income.

Manufactured products should only be supplied to external customers on either payment by cash or cheque, or the receipt of an Official Order prior to manufacture and delivery.

The Workshop Manager would report directly to the following personnel:

Management Option 1 Manager TSIRC Building Services Manager; Management Option 2 TSIRC Chief Financial Officer; Management Option 3 Joint Venture Manager; Management Option 4 Business Owner.

1.8 Marketing The marketing process is to identify potential customers (key stakeholders) and to market the services that can be provided to the customer, including the product range and product prices.

Once a new customer is obtained it is essential to maintain service and product quality, to achieve customer satisfaction and retention of the customer.

Marketing literature to develop the brand would initially be in the form of a one or two page colour brochure printed both sides, which could be written and printed in-house by TSIRC staff to minimise costs on start-up of the business.

Marketing of the business services would commence on appointment of the workshop manager who would be responsible for initiating and undertaking marketing to potential customers through telephone calls and face to face contact as opportunities arise.



2.0 Implementation Plan The following sets out a possible tentative program for the implementation and Procurement Plan to establish a cabinet workshop on Hammond Island.

Item Task Action Time Frame Person Responsible Review of Feasibility Study

1 Review Feasibility Study Undertake review of Feasibility Study Review by CEO, Chief Financial Officer, and Manager Corporate Services

2 Council consideration of Feasibility Study

Presentation of Feasibility Study to Council meeting Chief Executive Officer

3 Council Decision Identification of preferred business model (Go/No Go) Council

Implementation 4 Business Model Develop preferred business model 4 weeks Council Officers/Consultant

5 Secure Joint Venture Partner (If preferred model)

Undertake negotiations with possible Joint Venture partners 12 weeks Manager Corporate Services

6 Capital funding Identify source and secure funding 12 weeks by Chief Financial Officer

7 Recruit Workshop Manager Recruit and appoint workshop manager 8 weeks Industrial Relations Manager

8 Recruit Apprentices Recruit, appoint, and arrange Apprentice Contracts and 8 weeks Industrial Relations Manager

9 Appoint Registered Training Organisation

Develop Training Plans and delivery of formal apprentice training 4 Years RTO/Workshop Manager

Design and Procurement

10 Engage consultant to project manage delivery

Invite quotations for project management of delivery 2 weeks Manager Performance and

Advocacy

11 Review quotations received Appoint consultant 1 week Chief Executive Officer

12 Prepare building extension design and obtain Building Certification

Undertake investigations, prepare design layout for approval, and obtain Building Certification

6 weeks Appointed consultant

13 Undertake Procurement Obtain quotations for building works and supply of machinery 4 weeks Appointed consultant

14 Preparation of Offer Evaluation Report

Review offers received and draft Offer Evaluation Report with recommendations and submit to Council for consideration

2 weeks Project Manager Chief Executive Officer

15 Council review of Offer Evaluation Report

Presentation of Offer Evaluation Report Plan to Council meeting 1 week Chief Executive Officer

16 Council decision Go/No Go decision Council

Construction 17 Award construction contract Project Manager 1 weeks Project Manager/Council

18 Award contract for supply of machinery Project Manager 4 weeks Project Manager/Council

19 Construction Management Carry out inspections during construction and contract administration 12 week Project Manager

20 Commissioning Commission Plant 1 week Project Manager

Marketing

21 Marketing Literature Prepare marketing brochure 2 weeks Workshop manager and TSIRC staff

22 Marketing Telephone calls and face to face contact with potential customers On going Workshop Manager



APPENDIX A

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