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Paul Nakhleh

on 4 December 2014

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Transcript of Presentation

Financial Analysis
Strategic & Operational Issues Facing
ALL STAR Foods Canada Ltd.

Nabil Gorguy
Menen Jegatheeswaran
Paul Nakleh
Jyoti Patel
Jennifer Wong

Sunday, November 2, 2014
Employee Morale Regarding Potential Takeover
Rumours causing employees to be nervous
Productivity is impaired

Threat of unionization

SSI staff unwilling to relocate families to Toronto
Retain administration office in Edmonton

Move production from SSI London plant to ASFC Mississauga plant
Potential Lawsuit
Company served with $2 million lawsuit
Financial burden

Reputation hurt

Out-of-court settlement
expected at $1 million
Accrue contingent liability of $1 million

Invest in community relations advertizing
SSI: no rigid policies

ASFC: mounds of policies
Important cultural differences

Possible clashes in the future
John Tayton post-amalgamation to ease the transition

Progressively harmonize policies over time
Cultural Differences Between ASFC & SSI
SSI: no rigid policies

ASFC: mounds of policies
Important cultural differences

Possible clashes in the future
John Tayton post-amalgamation to ease the transition

Progressively harmonize policies over time
Important cultural differences

Possible clashes in the future
John Tayton post-amalgamation to ease the transition

Progressively harmonize policies over time
Delinquent Customers
Large accounts stretching payment terms
Time spent managing cash flow

Angry suppliers
Agree on COD for delinquent customers

More rigorous credit policies
Important cultural differences

Possible clashes in the future
John Tayton post-amalgamation to ease the transition

Progressively harmonize policies over time
IT System
Designed purely from a financial accounting standpoint
Key information missing from management reports
Invest in new IT system at cost of $2 million

SAP / SalesForce & FinancialForce
Important cultural differences

Possible clashes in the future
John Tayton post-amalgamation to ease the transition

Progressively harmonize policies over time
Anwar Ayoub's Management Style
Very different management style
Plant managers & employees feel an administrative burden

New procedures & reports
Automate creation of reports
Important cultural differences

Possible clashes in the future
John Tayton post-amalgamation to ease the transition

Progressively harmonize policies over time
Cross-Docking Initiative
Efficiency & operational problems
Product shortages

Delivery errors

Lost sales of approx. 1%

Waiting times for sales reps
Hire better-paid employees to fill orders

Acquire computerized weighing system

Send memo to sales reps requesting earlier order placement
Important cultural differences

Possible clashes in the future
John Tayton post-amalgamation to ease the transition

Progressively harmonize policies over time
Friction Between Ayoub & Pirelli
Longer production runs (Ayoub)

Reduced inventory levels (Pirelli)
These initiatives seem to go against one another
Organize a meeting with Ayoub & Pirelli

Financial incentive to compromise on a mutually-beneficial solution
Agenda
Situational analysis
Financial analysis
Strategic alternatives
Financing
Recommendations
Operational issues
Implementation plan

Mandate
Establish a strategic plan that will allow ASFC to pursue the growth and profitability requirements mandated by ALL STAR.
Internal Environment
Weaknesses

Slow sales growth
Weak financial performance
Lagging in supermarkets and drugstores
Weak presence in Western Canada
Low employee morale
External Environment
Opportunities

Increased sales of nacho chips & pretzels
Trend towards healthy alternatives
Trend towards single-serving snacks
Premium snack market expansion
Rapidly growing market for pet foods
External Environment
Threats

Potato chips sales decreasing
New entrants in snack food industry
Pressure to reduce retail prices
Private labels at large supermarket chains

Mission / Vision
Current Mission (Implied)
ASFC produces and distributes a variety of premium quality salty snacks in Canada. Its extensive warehousing and distribution network allows the company to meet its various clients’ needs in a timely and efficient manner.
Internal Environment
Strengths

Modern manufacturing equipment
Extensive warehousing & distribution network
Unique flavours
Sophisticated IT system
Situational Analysis
Revised Mission
ASFC produces and distributes a variety of premium quality salty snacks
and pet treats
in Canada. Its extensive warehousing and distribution network allows the company to meet its various clients' needs in a timely and efficient manner.
Vision Statement
Become the number one choice of salty snacks producer and distributor in each and every sales channels and across all Canadian sectors by offering a range of quality products with innovative and unique flavoring.
Key Success Factors
Competitive pricing
Promotions program
Efficient distribution systems
Appealing flavours
Objectives & Constraints
By year 2015:
Achieve gross revenues of $307,918,000
Generate pre-tax margin in excess of 10%
ALL STAR to provide financing for any capital investments exceeding an after-tax rate of return of 9%

Shareholders' Preferences
Bruce Tate
Wants to acquire Deli-snack

Nicole Gagnon
Recommends acquiring SSI
Enter premium snack and private-label markets

Jeff Karpenko
Does not support private-label market
Gerard Morrisseau
Dispose Petsnax given SSI acquisition

Francesca Pirelli
Retain Petsnax given SSI acquisition
Strategic Alternatives
Acquire Supreme Snacks Incorporated (SSI)

Acquire Deli-snack ltee

Produce store brand of potato chips for Sureway
Acquire Supreme Snacks Incorporated
(Keep Petsnax Line)
Overview

SSI Management willing to consider takeover
Premium of 20% over share price ($152 million)

Acquire Supreme Snacks Incorporated
(Keep Petsnax Line)

Pros
Market for Petsnax expected to double over next 3 years
Premium snacks market allows ASFC to diversify sales base
Presence in supermarkets, mass merchandise & club stores in Western Canada
Positive NPV of $32.5 million at 9% return
Pre-tax profit margin of 28%
Exceeds target revenue
Cons
Petsnax diverts attention from core competencies
Cultural differences between ASFC and SSI
Significant upfront investment of $161 million
SSI has no rigid hierarchy
Inability of SSI's computer system to produce detailed management reports
Acquire Deli-snack ltee
Overview

Quebec-based company
Minimum bid > $29 million
Initial cost of $1 million
3rd biggest player

Alternative 2: Acquire Deli-Snack ltee

Pros
Presence in private label market – high expected growth rate of 15%
Successful in the francophone market
Providing flavours that are unique to the Canadian palate
Cons
Does not improve holdings of supermarket and drugstore share
Negative NPV of
$3.8 million
Cannot consolidate Deli’s plant and ASFC Laval plant
Produce store brand of potato chips for Sureway
Overview
3rd biggest player in Quebec
Strong presence in convenience store market
Niche created in francophone market
10% of revenues generated from private label
Goodcrunch is considering buying Deli-Snack for $29M

Produce store brand of potato chips for Sureway

Pros
Contribution margin of 20%
Takes away business from competition
Generates greater sales in Western Canada
Cons
Distracts AFSC from Tasty Crunch line of products
Retailers make no long-term commitments
Contribution margin generated will not exceed savings from Calgary plant closure
Financing
Recommendations
Acquire SSI and keep Petsnax

Do not acquire Deli Snacks ltee

Do not produce store brand of potato chips for Sureway
What should ASFC do?
Acquire SSI and keep Petsnax
Why not Deli Snacks ltee
In 2015
Why not Sureway
In 2015
Implementation Plan
Amalgamate with SSI and retain Petsnax
Keep John Tayton post-amalgamation
Harmonize policies of ASFC and SSI
Revise AFSC mission statement
Overview

SSI Management willing to consider takeover
Premium of 20% over share price ($152 million)

Acquire Supreme Snacks Incorporated
(Dispose of Petsnax Line)

Pros
Allow ASFC to focus on its core competencies / mission
Positive NPV of 25 M at 9% return - Constraint
Pre-tax of 30% in 2015 – Target
Cons
Would forgo important potential in Petsnax market in Canada & U.S.
Would loose the opportunity to diversify ASFC sales base
Less revenue and market share, only 92 M in 2015 – Target
Acquire Supreme Snacks Incorporated
(Dispose of Petsnax Line)
Met
6.7%
N/A
Conclusion
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Full transcript