Coffee Export Business Plan

Silvera & Sons Ltda

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Financial Plan

7.0 Financial Plan

We want to finance growth through a combination of long-term debt and cash flow. Purchase of the larger facility and equipment will require approximately eighty percent debt financing. Additional technology will be primarily financed with cash-flow. Stock turnover must remain at or above four or we run the risk of backing up orders and jeopardising our freshness guarantees. We have had no problems with accounts receivable and we expect to maintain our collection days at 30 with thirty percent of sales on credit.

In addition, we must achieve gross margins of thirty-five percent and hold operating costs no more than sixty-five percent of sales.

7.1 Important Assumptions

Important assumptions for this plan are found in the following table. These assumptions largely determine the financial plan and require that we secure additional financing.

General Assumptions

General Assumptions
	1999	2000	2001
Plan Month	1	2	3
Current Interest Rate	14.00%	14.00%	14.00%
Long-term Interest Rate	9.00%	9.00%	9.00%
Tax Rate	45.58%	47.00%	45.58%
Other	0	0	0

7.2 Key Financial Indicators

The most important factor to Silvera & Sons anticipated growth is the procurement of necessary financing. The size of the orders currently requested by importers are larger than what can be produced given our present plant capacity.

The following chart shows changes in key financial indicators: sales, gross margin, operating expenses, collection days, and stock turnover. The growth in sales goes above thirty percent in the first year, twenty percent in second, and back to thirty percent in year three after which it will settle. We expect to increase gross margin but our projections show a decline in the first two years following the purchase of the new facility. This is due to the facilities not being run at maximum capacity. The projections for collection days and stock turnover show that we expect a decline in these indicators.

Benchmarks



7.3 Break-even Analysis

The break-even analysis shows that Silvera & Sons has sufficient sales strength to remain viable. Our break-even point is close to 7,300 units per month and our sales forecast for the next year calls for almost 8500 units per month on average. Projections are detailed in the following table.

Break-even Analysis



Break-even Analysis

Break-even Analysis:
Monthly Units Break-even	7,333
Monthly Revenue Break-even	£1,774,667
Assumptions:
Average Per-Unit Revenue	£242.00
Average Per-Unit Variable Cost	£212.00
Estimated Monthly Fixed Cost	£220,000

7.4 Projected Profit and Loss

We expect to close the first year of production in the new facility with ($BRL) 26,260,416 in sales and increase our sales to more than ($BRL) 33 million in the second year and ($BRL) 46 million in year three. Net earnings will average ($BRL) 2.4 million.

Profit and Loss

Pro Forma Profit and Loss
	1999	2000	2001
Sales	£26,260,416	£33,021,600	£46,126,400
Direct Costs of Goods	£21,242,400	£26,712,000	£37,312,000
Production Payroll	£300,396	£316,884	£331,912
Other	£300,000	£345,000	£410,000
	------------	------------	------------
Cost of Goods Sold	£21,842,796	£27,373,884	£38,053,912
Gross Margin	£4,417,620	£5,647,716	£8,072,488
Gross Margin %	16.82%	17.10%	17.50%
Operating Expenses:
Sales and Marketing Expenses:
Sales and Marketing Payroll	£225,492	£128,150	£136,521
Advertising/Promotion	£144,000	£165,000	£165,000
Travel	£21,000	£22,500	£24,000
Miscellaneous	£24,000	£26,500	£28,500
Other	£0	£0	£0
	------------	------------	------------
Total Sales and Marketing Expenses	£414,492	£342,150	£354,021
Sales and Marketing %	1.58%	1.04%	0.77%
General and Administrative Expenses:
General and Administrative Payroll	£119,400	£130,228	£173,377
Sales and Marketing and Other Expenses	£0	£0	£0
Depreciation	£216,000	£216,000	£216,000
Leased Equipment	£50,400	£50,400	£50,400
Utilities	£36,000	£36,000	£36,000
Insurance	£72,000	£75,000	£78,000
Rent	£305,250	£300,000	£300,000
Other	£0	£0	£0
Payroll Taxes (National Insurance)	£58,076	£51,774	£57,763
Other General and Administrative Expenses	£0	£0	£0
	------------	------------	------------
Total General and Administrative Expenses	£857,126	£859,402	£911,540
General and Administrative %	3.26%	2.60%	1.98%
Other Expenses:
Other Payroll	£0	£0	£0
Contract/Consultants	£18,000	£24,000	£30,000
Other	£0	£0	£0
	------------	------------	------------
Total Other Expenses	£18,000	£24,000	£30,000
Other %	0.07%	0.07%	0.07%
	------------	------------	------------
Total Operating Expenses	£1,289,618	£1,225,552	£1,295,561
Profit Before Interest and Taxes	£3,128,002	£4,422,164	£6,776,927
Interest Expense	£262,644	£214,159	£161,392
Taxes Incurred	£1,299,147	£1,977,763	£3,015,582
Net Profit	£1,566,211	£2,230,243	£3,599,954
Net Profit/Sales	5.96%	6.75%	7.80%

7.5 Projected Cash Flow

Silvera & Sons expects to manage cash flow over the next three years with the assistance of a loan supported by the Central Bank of Brazil of ($BRL) 2,700.000. This financing assistance is required to provide the working capital to meet the current needs for the construction of the new production facility and additional personnel, distribution costs, and other related expenses.

Cash



Cash Flow

Pro Forma Cash Flow
	1999	2000	2001
Cash Received
Cash from Operations:
Cash Sales	£26,260,416	£33,021,600	£46,126,400
Cash from Receivables	£137,250	£0	£0
Subtotal Cash from Operations	£26,397,666	£33,021,600	£46,126,400
Additional Cash Received
VAT, VAT, HST/GST Received	£0	£0	£0
New Current Borrowing	£0	£0	£0
New Other Liabilities (interest-free)	£0	£0	£0
New Fixed liabilities	£2,700,000	£0	£0
Sales of Other Current Assets	£0	£0	£0
Sales of Fixed assets	£0	£0	£0
New Investment Received	£0	£650,000	£650,000
Subtotal Cash Received	£29,097,666	£33,671,600	£46,776,400
Expenditures	1999	2000	2001
Expenditures from Operations:
Cash Spending	£1,400,401	£1,524,093	£2,133,911
Payment of Accounts Payable	£20,136,432	£29,123,331	£39,159,844
Subtotal Spent on Operations	£21,536,832	£30,647,424	£41,293,754
Additional Cash Spent
VAT, VAT, HST/GST Paid Out	£0	£0	£0
Principal Repayment of Current Borrowing	£144,000	£175,000	£200,000
Other Liabilities Principal Repayment	£27,600	£25,300	£25,300
Fixed liabilities Principal Repayment	£305,250	£294,636	£294,636
Purchase Other Current Assets	£60,000	£75,000	£85,000
Purchase Fixed assets	£2,700,000	£0	£0
Dividends	£0	£0	£0
Subtotal Cash Spent	£24,773,682	£31,217,360	£41,898,690
Net Cash Flow	£4,323,984	£2,454,240	£4,877,710
Cash Balance	£5,318,244	£7,772,484	£12,650,194

7.6 Projected Balance Sheet

As shown in the balance sheet in the following table, our net will grow from approximately ($BRL) 935,626 to more than ($BRL) 1.48 million by the end of 1999 and to ($BRL) 3.46 million by the end of the plan period. The monthly projections are in the appendices.

Balance Sheet

Pro Forma Balance Sheet
Assets
Current Assets	1999	2000	2001
Cash	£5,318,244	£7,772,484	£12,650,194
Stock	£1,780,800	£2,239,329	£3,127,952
Other Current Assets	£303,936	£378,936	£463,936
Total Current Assets	£7,402,980	£10,390,750	£16,242,082
Fixed assets
Fixed assets	£3,221,650	£3,221,650	£3,221,650
Accumulated Depreciation	£316,000	£532,000	£748,000
Total Fixed assets	£2,905,650	£2,689,650	£2,473,650
Total Assets	£10,308,630	£13,080,400	£18,715,732
Liabilities and Capital
Current Liabilities	1999	2000	2001
Accounts Payable	£4,375,408	£4,761,870	£6,667,185
Current Borrowing	(£86,000)	(£261,000)	(£461,000)
Other Current Liabilities	(£27,600)	(£52,900)	(£78,200)
Subtotal Current Liabilities	£4,261,808	£4,447,970	£6,127,985
Fixed liabilities	£2,796,750	£2,502,114	£2,207,478
Total Liabilities	£7,058,558	£6,950,084	£8,335,463
Paid-in Capital	£525,000	£1,175,000	£1,825,000
Retained Earnings	£1,021,611	£2,587,822	£4,818,065
Earnings	£1,566,211	£2,230,243	£3,599,954
Total Capital	£3,112,822	£5,993,065	£10,243,019
Total Liabilities and Capital	£10,171,380	£12,943,150	£18,578,482
Net Worth	£3,250,072	£6,130,315	£10,380,269

7.7 Business Ratios

Standard business ratios are included in the following table. The ratios show an aggressive plan for growth in order to reach maximum production within three years. Return on investment increases each year as we bring the new facility to maximum capacity and production. Return on sales and assets remain strong and cost of goods decreases based upon efficiency projections. Projections are based on the 1997/98 selling price.

Ratios

Ratio Analysis
	1999	2000	2001	Industry Profile
Sales Growth	43.14%	25.75%	39.69%	-4.40%
Percent of Total Assets
Accounts Receivable	0.00%	0.00%	0.00%	22.10%
Stock	17.27%	17.12%	16.71%	15.60%
Other Current Assets	2.95%	2.90%	2.48%	26.00%
Total Current Assets	71.81%	79.44%	86.78%	63.70%
Fixed assets	28.19%	20.56%	13.22%	36.30%
Total Assets	100.00%	100.00%	100.00%	100.00%
Current Liabilities	41.34%	34.00%	32.74%	26.20%
Fixed liabilities	27.13%	19.13%	11.79%	18.00%
Total Liabilities	68.47%	53.13%	44.54%	44.20%
Net Worth	31.53%	46.87%	55.46%	55.80%
Percent of Sales
Sales	100.00%	100.00%	100.00%	100.00%
Gross Margin	16.82%	17.10%	17.50%	33.10%
Selling, General & Administrative Expenses	11.04%	10.35%	9.90%	20.70%
Advertising Expenses	0.55%	0.50%	0.36%	1.90%
Profit Before Interest and Taxes	11.91%	13.39%	14.69%	2.80%
Main Ratios
Current	1.74	2.34	2.65	2.23
Quick	1.32	1.83	2.14	1.40
Total Debt to Total Assets	68.47%	53.13%	44.54%	44.20%
Pre-tax Return on Net Worth	88.16%	68.64%	63.73%	6.50%
Pre-tax Return on Assets	27.80%	32.17%	35.35%	11.60%
Additional Ratios	1999	2000	2001
Net Profit Margin	5.96%	6.75%	7.80%	n.a
Return on Equity	48.19%	36.38%	34.68%	n.a
Activity Ratios
Accounts Receivable Turnover	0.00	0.00	0.00	n.a
Collection Days	0	0	0	n.a
Stock Turnover	12.00	13.29	13.90	n.a
Accounts Payable Turnover	5.60	6.20	6.16	n.a
Payment Days	58	57	51	n.a
Total Asset Turnover	2.55	2.52	2.46	n.a
Debt Ratios
Debt to Net Worth	2.17	1.13	0.80	n.a
Current Liab. to Liab.	0.60	0.64	0.74	n.a
Liquidity Ratios
Net Working Capital	£3,141,172	£5,942,779	£10,114,097	n.a
Interest Coverage	11.91	20.65	41.99	n.a
Additional Ratios
Assets to Sales	0.39	0.40	0.41	n.a
Current Debt/Total Assets	41%	34%	33%	n.a
Acid Test	1.32	1.83	2.14	n.a
Sales/Net Worth	8.08	5.39	4.44	n.a
Dividend Payout	0.00	0.00	0.00	n.a