Expansion and Risk at Hansson Private Label, Inc.
Evaluating Investment in the Goliath Facility HBS#4021
Vent Consulting takes pleasure in presenting our Hanson Private Label’s (HPL) capital expansion executive summary. We carefully reviewed all applicable case materials and believe we have quantified your primary risks, benefits, and most attractive course of action.
1) HPL has performed exceptionally well since inception in 1992. Financial statements show that operating revenues have increased from $503.4M in 2003 to $680.7M in 2007. During this time, gross operating profit increased by $24.3M. This illustrates that the company is not sacrificing profits for top level growth. Capital replenishment matches or exceeds depreciation. Net income increased 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 last five years, while net income has averaged 5.3%. Dividends have been paid to stockholders. Cash flow from operations has increased steadily. The cash from investing has fluctuated from a low of $5.8M in 2006 to a high of $7.8M in 2003, indicating an overall conservative strategy of controlled expansion. HPL used more cash in financing in 2006 and 2007 than in previous years, which may contribute to future growth. To reinforce the company’s financial performance: •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 working capital is at a five year high of $102.5M
All four plants under HPL are operating at 90% capacity and a focus on conservative efficiency has led to strong financial performance. Comparatively speaking, HPL’s 9.26% EBITDA ratio is stronger than industry competition, another indicator of strong earnings and management. 2) Vent Consulting’s analytical summary is provided in Appendix 1. Note the calculated NPV of $4,971 and IRR of 11.1% at tab...