We are going to show a three years forecast for The Body Shop International; it consists of three main objectives:
• To enhance The Body Shop brand through a focused product strategy and increased investments in stores;
• To achieve operational efficiencies in the supply chain by reducing product and inventory costs;
• To reinforce the stakeholders culture.
We extrapolate each account using the percentage of sales of year 2001 to have a first look on the evolution of the financial statements regarding to sales’ growth. We choose to use the percentage of sales of the most recent year to try to fit best the actual situation of the society.
This choice didn’t restrict our analysis of the society because in parallel we used a sensitivity analysis to see the accounts susceptible to have a direct impact on the benefits. Thanks to this sensitivity analysis we were also able to see the impact of a significant upward or downward in a particular account.
Because we decided to extrapolate each account regarding to the percentage of sales we had to make an assumption on the sales growth. To compute this number we first looked the growth from 1999 to 2001 (8.7% from 1999 to 2000 and 13.3% from 2000 to 2001) and we decided to apply a growth rate of 12%. Patrick Gournay (CEO) indicates in the first part of the case study that the newly implement strategy would produce improved results but we decided first to do a prudent prediction. Once again thanks to the sensitivity analysis we could do predictions on the impact of a higher or lower growth rate on the benefits.
Of course, because all the accounts were linked with the sales, they all increased by 12%. This wasn’t a very realistic situation so we decided to modify some of them to fits more with reality:
-Restructuring costs: we set it to GBP 0 from 2002 to 2004. Indeed these costs in 2000 and 2001 were related to the sale of manufacturing plants in Littlehampton, England, and to associated reorganization costs. As soon as the restructuration is over, there is no reason to let money in restructuring costs for our predictions.
-Exceptional costs: we put a number of GBP 5.23 million from 2002 to 2004. Exceptional costs in 2001 were related to redundancy costs, costs of supply chain development and impairment of fixed assets and goodwill and were really higher than in 1999 and 2000. We obtain the number of 5.23 by computing the average exceptional costs from 1999 to 2001 ([4.5+0.0+11.2]/3=5.23). Because these costs are by definition unpredictable, the choice of calculating an average exceptional cost was necessary to include exceptional costs in our predictions.
-Other assets: because other assets in 2001 and 2000 were related to the sale of the company’s Littlehampton manufacturing plant we decided to let this account at 0 for the three years of prediction. Indeed we don’t have information in the case that indicates upcoming sales in the company for the years to come. We equilibrate the balance sheet in decreasing the long-term liabilities as soon as we have no information concerning upcoming investments in the company.
-Cost of sales: in the paper we have information from the CEO that said that the new strategy will reduce product and inventory cost. We suppose that this strategy will be well implemented by the company and so we increase costs by 8% each year, less than the 12% of the sales’ growth.
-Shareholders equity: we think it’s going to stay like in 2001 as the company didn’t plan to increase its capital. The stabilization in the shareholders equity will be counterbalance by a diminution in the cash available, the net fixed assets and the other current assets.
-Net fixed assets: we first keep a 12% growth in fixed assets (like the sales’ growth) because we think that some investments will be requiring for supporting the increase in sales and opening new stores to reinforce our Brand, as suggested by the...
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