Hansson Private Label

vent-hole Consulting expansion and Risk at Hansson Private chase, Inc. Evaluating enthronement in the Goliath Facility HBS4021 wall socket Consulting takes pleasure in presenting our Hanson Private Labels (HPL) chief city expansion executive director summary. We carefully reviewed all applicable movement tangibles and believe we have quantified your radical risks, benefits, and close attractive course of litigate. 1) HPL has performed exceptionally rise up since inception in 1992. Financial statements argue that operational revenues have change magnitude from $503. 4M in 2003 to $680. 7M in 2007.During this time, gross operating make augment by $24. 3M. This illustrates that the company is non sacrificing profits for top level growth. hood replenishment matches or exceeds depreciation. pelf income increase during the same time span by $9. 6M. The revenue gross margin has averaged 7. 8% growth and the gross margins have averaged 18. 6% over the uttermost five-s pot years, mend net income has averaged 5. 3%. Dividends have been paying(a) to stockholders. Cash f first base from operations has increased steadily. The currency from investing has fluctuated from a low of $5. M in 2006 to a mellow of $7. 8M in 2003, indicating an overall conservative schema of controlled expansion. HPL used more cash in financing in 2006 and 2007 than in previous(prenominal) years, which may contribute to future growth. To repay the companys financial doing Total assets have grown over the years to a high of $380. 8M in 2007 Long-term debt is at a five year low at $54. 8M Net workings capital is at a five year high of $102. 5M every(prenominal) four plants under HPL are operating at 90% efficiency and a focus on conservative efficiency has led to strong financial consummation.Comparatively speaking, HPLs 9. 26% EBITDA ratio is stronger than industry competition, another(prenominal)(prenominal) indicator of strong earnings and management. 2) volcano Consultings analytical summary is provided in Appendix 1. line of merchandise the calculated NPV of $4,971 and IRR of 11. 1% at tab NPV-BASLINE. Given an genuine discount rate of 9. 38%, both the positive NPV and the positive 1. 7% IRR crack on this investing type hurtle initially indicate a recognize proposal. Additionally, the calculated profitability index of 1. 11 suggests the scheme should be pursued.Note that the discounted payback compass point is just under 7 years, 4 years beyond the learnual load under consideration with HPLs largest retail customer. 3) Sensitivity analysis reveals interesting factors, however. Note in the additional tabs Ramping up electrical condenser utilization to 85% in 3 years instead of the projected 5 years yields a full 2% IRR increase. If aggressive marketing can clutch secondary demand from competitors and increase content utilization from 85% to 95% in years 4 through 10, IRR is increased to 14. 8%. The project is very mad to unit selling toll.If expected yearly growth in sales price rises from 2% to just 3. 5%, IRR rises a full 6. 7% to 17. 8%. The project is also very sensitive to goodness apostrophizes. A small . 5% increase in expected inflation from 1. 0% to 1. 5% annual raw material costs number baseline IRR calculations to 9. 5%, making the project unattractive compared to the 9. 38% discount rate. Improved capital supply yields expected improved project returns. The last tab illustrates a potential usefulness of 2. 5% IRR. Given this information, Vent Consulting has place 3 courses of action (COA) 1) Accept the capital expansion proposal as create verbally by Mr.Gates 2) Accept the retailer s 3year contract, but reduce capital risk by cut the scale of expansion, improving the use of working capital and sub-contracting production shortfalls to other producers. 3) save status quo and reject the retailer contract Despite the positive NPV, Vent Consulting advises rejection of COA 1 due to the following uncontained risk factors essential capital expansion and associated financing does not match the proposed customer contract, adding uncontrolled capacity utilization risk.This risk is compounded by a lack of customer diversification. Difficult-to-predict sales price and raw material cost variables also add significant bring out risk. Vent Consulting also recommends rejection of COA 3. This course of action would propagate HPLs growing cash cow business model, and sacrifice an exemplification opportunity to improve company performance and steal market share in cooperation with one of the largest industry retailers. We strongly recommend COA 2, which apitalizes on market opportunity go minimizing the significant risk of the original proposal. specifically Reduce capital expansion to 40% of proposed project. Improve capital management apply primary capacity to key/primary retail customer(s) Sub-contract production shortfalls to other producers for lessor retailers/custo mers Vent Consulting is eager to provide additional recommendations on how this is would be best accomplished for a fee once weve completed another few Themes.