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Cafes Monte Bianco

To: From: cc: Date: Re: Mr. Giacomo Salvetti Andrea Yates Prof. Susan Murray September 5, 2013 Private Label

Per your request, I developed a profit plan and financial assessment for Cafes Monte Bianco possible strategy change to private label. I have determined we should look at maintaining our strategy of selling premium brand and private label coffee.

Profit Plan
Sales I forecasted sales for 2001 compared to 2000 would decrease by 3,312,408,000 liras due to the reduced sales price of private label coffee.

Capacity/Year Current Price (Avg. in 2000) Revenue (Estimated in 2001)

2001 6,000,000 8,800 52,800,000,000

2000 3,500,000 16,032 56,112,408,000

Operating Expenses Our operating expenses will be lowered significantly by going strictly to private label. We will be able to eliminate marketing costs, as well as, reduce selling costs, research and development costs, and administrative costs by 12,440,161,000 liras. Additionally, fixed costs will be lowered due to our increased capacity from 3,500,000 to 6,000,000. Profits Even with the increased capacity and decreased spending in SG&A, we will not be able to make as much in Net Profit as we were in 2000. We will have an estimated 333,828,000 liras shortfall.

I made the assumption we had no finished good or raw material inventory and that we were paying all of our bills on time. once any left over A/R is paid in full from the premium label.593.148. The months of March and April will be 2 .800. I am concerned about the liquidity of Cafes Monte Bianco and our ability to keep the necessary inventory and raw materials on hand to meet demand.805 1.341 3. Cafes Monte Bianco Estimated Statement of Cash Flows For the Year Ended Dec.Revenues Costs of Goods Sold Gross Margin SG&A Interest Expense Profits Taxes (40%) Net Profit Liquidity Income Statement (Thousands of Italian liras) 2001 (Estimated) 2000 52.370.440.760 Accounts Receivable and Operating Cash I have concerns regarding the private brands retailers’ 90-day payment policy.867) 9.133) Decrease in A/P (487.331) Decrease in Finished Goods 1.161 Depreciation Expense 2.088) 1.000 56.273.536) (1.810. When making the statement of cash flows.700 Increase in A/R (10.400 Decrease in Inventory (Raw Material) 2.760 - 8.945.686.297.825. When we first switch over to private label. (1. I don’t believe most of my assumptions are correct. we will not have any cash and will have to rely on credit.408 (42. While our net cash flow seems ok. given the lack of information.000) (33.112.000) 2.820) (3.633 If we switch to a complete private label strategy.329.659) (15.329.611.541 (3.000 22.963 Net Cash Flow from Operating Activities Cash Flows from Financing Activities Net Cash Flows from Financing Activities Cash Flows from Investing Activities Net Cash Flows from Investing Activities Net Cash Flows 8.882.074.000) (3.907.878. 2001 Cash Flows from Operating Activities Operating Income (EBIT) 12.

While the financial leverage ratio did go down.482.577.800. our Return on Equity decreases as well as our profitability ratio.000 2.967.960.350.823.276.219.26 4.000 1.860.000 3.particularly tough.216.545.060 *Cash Out is calculated using monthly operating expenses minus depreciation for each unit produced.545. The inability to maintain a constant level may cause us to lose business in the private label.885.000.226. Return on Equity With the new potential strategy.400.000 2.100) 383.600 1.400 2. Profitability Ratio (Net Income/Sales) Asset Turnover Ratio (Sales/Assets) Financial Leverage Ratio (Assets/Shareholders Equity) ROE 2001 3.577.000 4.060 2.607.485. Expected Payment Starting January February March April May June July August September October November December 6.060 4.131.577. as well as.868.000. it appears last year’s strategy would be more attractive to investors than the new proposed strategy.600) (891.782.404.373.175.437.545. Looking at the ROE.577.000 6.100 3.800 1.91 2.577.400.47% 1.577.892.000 3.577.477. due to private label retailers’ demand for stability.060 3.185.748.410.577.545.518.545.665.21 3 .545.060 6.495. I believe that is in a large part of not knowing what A/P will be at the end of the year.000 3.140.865.52 0.000 3.120.577.485.869. the debt taken out for the expansion since nothing was mentioned regarding how the expansion was paid for or what the current long-term debt was for.060 4.160 7.157.000 Cash Left Over 3.000 3.800 4.340.740 2. In making the calculations. Our poor liquidity may be exacerbated if even one of the private retailers makes a late payment.900 6.328.400 2.000 3.649.400.783.030.410.217.905.000 3.060 785.400 (1. Any disruption in our supply chain could affect our profits for years to come. We will also have a low cash reserve at the end of the year. An increase in the asset turnover ratio was expected due to the increase in capacity and the ability to hold coffee in inventory for private label.000.630.332.060 7.362.07 2000 3. due to the slow summer sales.742.512. With a low to negative net cash flow in some months and a maxed out credit line of 25 billion liras.990.613.787.230.060 8.545.500 3. I assumed the expansion was already on the books as an asset.000 3.000 3.060 4.160 3.545. Inventory Another issue that may affect our success in the private label is whether or not we can maintain a constant level of inventory.790.590. asset turnover ratio and financial leverage ratio.291.000 3.752.060 4.800.895.060 Cash Out 3.790.600.545. this is a real concern.640.400 3.800 940.450.000 6.120.000 4.87 0.420.000 Total Cash On Hand 121.060 772.545.205.575.000 3.05% 0.659.

4 . Cafes Mount Bianco could pick up three more private label retailers to make up the shortfall in demand for their premium brand offerings. I would recommend Cafes Mount Bianco continue with their current strategy of mixing premium and private label coffee.Profitability Ratio Asset Turnover Ratio Financial Leverage Ratio Conclusion In conclusion.