Sunflower Nutraceuticals (SNC) is a Nutraceuticals distributor, privately held, based in southeast Florida. It has, for the past 6 years, expanded into new retail outlets and launched several private label products. During the past few years Annual Growth has been flat, with very slim margins, while being working-capital intensive. PHASE 1
SNC has to decide whether to acquire a New Customer, leveraging supplier discounts, tightening Accounts Receivable by evaluating the payment profile of customers, or dropping poorly selling products in order to improve its Working Capital. Acquiring a new customer increased sales significantly, but also resulted in higher receivables and inventory, however by also tightening its Accounts Receivable by dropping Super Sports Center, SNC was able to offset some of the Accounts receivable impact, in turn freeing up Cash. The added sales and tighter Accounts Receivable standards resulted in additional EBIT, higher Net Income and increased Free Cash Flow, resulting in $328K of created value for SNC, while reducing the need for usage of the Credit Line. PHASE 2
In 2016 SNC decided to develop a Private-Label Product for Fountain of Youth Spas, while deciding not to pursue Big-Box distribution and expanding online presence. The decision to develop a Private-Label product increased EBIT margin, while only increasing Receivables and Inventory by modest amounts. Expanding online presence or pursuing Big-Box distribution would have put pressure on maintaining inventory levels while potentially increasing Account Receivables balances, hence impacting Free Cash Flow. Also Big-Box margins are usually lower that retail margins, negatively impacting EBIT margins. All in all, sales increased by 12.5%, Net Income almost doubled during the 3 year period, while further reducing the company’s dependence on its Credit Line, adding an additional $800K to the value of SNC. PHASE 3
For the third and final phase of the Sunflower Nutraceuticals...
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