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Copy of CMABC Bella Beverages Presentation 11BC04_04

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Joe Lin

on 17 March 2013

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Transcript of Copy of CMABC Bella Beverages Presentation 11BC04_04

Strategic and Operational Review Situational Analysis and Recommendation Recommendation Implementation - Operational Issues Financial Reporting & HR Implementation Plan - Marketing and IT Financial Forecast Presented to the Board of Directors

Presented by:
Henry Tso
Maggie Koon
Joe Lin
Jack Aldaz

on behalf of Kerry Vance, CMA Implementation Plan Implementation Plan - Athlete Promotion Financial Overview Bella Beverages Inc. Performance Measurement & Balanced Scorecard Implementation: Launch the Athlete Endorsement Implementation: CEO Selection & Succession Planning Implementation: IT System Upgrade Implementation: Ethics Control System Implementation: Pension Plan Reduced with plant sale

Contractual provisions Financial forecast to show the
liklihood of this is low Finalise contract for campaign





Prepare necessary financing

Arrange for regular meetings with Bobo’s manager to confirm progress

Assign a marketing team to manage this specific marketing campaign

Ensure accurate tracking of sales data to monitor effect of campaign Optional provisions:
i. Penalty for breach of contract to ensure loyalty to brand
ii. Optional renewal agreement in year 2 if campaign is found to be highly successful
iii. Additional compensation for inclusion of water promotion 1. Board and A. Lu develop detailed outline for ideal candidate

2. Engage recruiting firm to propose 3 potential candidates

3. Interview suitable candidates

4. Deadline for job offer: March 12th

5. Ideal start date: March 19th [ March 31, 2012: Hani Jafeer Retires ] Risk: CEO can not be replaced before March 31, 2012 Contingency plan:


A. Arrange for interim CEO

B. Negotiate a delayed retirement date with Jafeer [ Defines the domain of acceptable behaviour in an organization ] Part 1. Stated Code of Ethics that is clear, communicable

Part 2. System to monitor deviations from Code of Ethics

Part 3. System to motivate compliance Three parts to the Ethics Control System: (i.e. punish undesirable behaviour, reward desirable behaviour) [ To update the company’s severely out-of-date IT system, a major upgrade is required. ] Upgrade to an Enterprise Resource Planning (ERP) What is it? An integrated management information system that links all departments to improve the flow of information and operational activities internally and manage connections with external stakeholders. 1. Appoint committee to manage upgrade

2. Fully understand requirements of all departments

3. Solicit bids regarding costs to purchase and implement Initial Steps: Projected cost: Maximum $1.5M over 2 year period Recommended: Defined Contribution Plan Lu to contact several plan carriers

Plan representatives to provide details, A. Lu to
summarise in report to CEO.

Cost is a percent of employee salary (e.g. 2 - 4%) If plan is to be provided: Q&A Sale of bottling plant: Bottled Water Venture Buy the Wonder line Athlete Promotion Pro Forma Cash Flow Pro Forma Balance Sheet Pro Forma Ratios Assuming the partnership would require BB to reduce the sales price of

their beverage by 30% (an equal half of the 60% reduction), $2.5 million

bottles would need to be sold for the promotion to break even. Estimated

sales volume for the three-month promotion is only 400,000; therefore, it

is not recommended BB pursue the venture. Fries Snacks Partnership Pro Forma
Income Statement Stagnant performance and share price

Concerns of BB’s EPS Major Issues Targets
Growing EPS by 10% annually
Constraints
ROE of 10% (15% for higher risk ventures)
Line of credit of 2.5M
850K loan against head office facility alone or up to 2.4M against facility and land
Earn gross profit on materials of min. 70%
Bottling plant capacity of 130M servings Targets & Constraints Proceed with:
Sale of Bottling Plant
Water Bottle Sales
Athlete Promotion
Do Not Proceed with:
Purchase Wonder Snacks soft drink line
Private Label
Co-branding with Fries Snack Recommendation To be North America’s premium beverage company offering consumers high quality soft drinks and juice beverages. We strive to create long-term value for Bella Beverages’ shareholders by delivering sustainable and profitable growth. Implied Mission To lead our industry in the development, production, distribution, and sale of non-alcoholic beverages and to offer exceptional customer value. Vision Financial Ratios Current Ratio Net Profit Margin Net Profit Margin – Cont’
Pros
$5M cash
25% saving on the first 150M servings, roughly 26% after 150M servings.
Increase bottling volume (twice of 2011 level)
Long term agreement
Mitigate potential risk of strike at the plants
EPS increase by $0.41 by 2016 (2011 EPS $0.27)
Cons
Loss of control of the production
Loss control on quality
Doesn’t contribute to revenue growth Strategic Alternatives
Cons
$3.43M initial investment
Additional machinery costs - $150,000
Lack of experience and brand recognition
High risk – 15%
Limited stream flow (reach it capacity at year 35 at 3% growth)
Operating lost of $136K in the first year.
Free for local Pros
High-profile athlete fits target market
Contribute $0.25 to EPS by 2016 at 30% initial sales increase and $0.169 at 20.2% increase.
Positive NPV at 30% initial sales increase and at break-even when the initial sales increase by 20.2%
Cons
$4.35M investment.
Short-term contract (one year)
Threat of negative press with Bobo Buckets
Loss in year one ($2.12M at 20% growth, and 1.8M at 30% growth) Pros
Increase market share
Steady sales volume for WS brand
Utilize BB’s existing sales and distribution network
Positive NPV of $430K
Cons
Initial set-up cost $250K and ongoing maintenance costs are required
short equipment life (5 years)
Doesn’t mitigate threat of decreasing soft drink demand
History of sale been rejected.
Pros
Increase profit (additional $26K by 2016)
Utilize excess production capacity
Penetrate market with budget-minded consumers
Cons
One time short-term contract
Annual sales volume aren’t guaranteed
Additional $150k salary for new manager
Doesn’t meet the 70% margin requirement
Only contribute $0.005 to EPS by 2016 Decision Matrix Incremental EPS at 2016 Incremental Profit at 2016 NPV Focus on marketing and product innovation
Coca-Cola and Pepsi outsource to regional bottlers Outsource Bottling Headed by K. Vance, and C. Lemieux
May – Dec 2012
Action:
Hire lawyer to negotiate terms and prepare management buyout agreement
Close deal
Seek alternative bottling partners Sale of Bottling Plant New growth segment
Sell the bottle and create social mission, similar to Starbucks Bottled Water Diversification to flavoured water with refreshing, healthy flavors
Clearly Canadian, Nestle and Vitamin Water Future of Bottled Water Headed by K. Vance, Amy Lu, Hani Jafeer and new CEO
Mar – Dec 2013
Action:
Obtain government approval
Obtain financing to purchase farmland
Hire contractor to remove old house and farm building and clean up property
Purchase collection and tank equipment
Hire site personnel Pursue Bottled Water Venture Increase sales and awareness Athlete Promotion Opportunity to work with emerging superstar
Capitalize on his popularity Athlete Promotion Headed by J. Van Besmin
Mar – May 2012
Action:
Hire Loud Mouth Promotion Inc. and sign endorsement contract with Bobo Buckets
Develop marketing campaign and strategy Athlete Promotion Internal memo and hold town hall meetings with Q&A
Reason for change
Revised mission statement
Decision to pursue bottled water venture, sale of bottling plant and use of athlete promotion
Hiring of new CEO Communication & Change Management Establish hiring committee
Determine qualifications & criteria
Post the job
Interview external and internal candidates
Select CEO successor
Prepare hiring documentation HR – Hiring CEO Successor Identify long-term growth strategy
Identify key management positions
Develop capabilities framework
Identify potential talent pool & assess capabilities
Develop knowledge & leadership transfer plans
Evaluate effectiveness & ongoing progress measure HR – Succession Planning Form a pension plan committee
Gather information and meet with trust/investment companies to discuss terms on pension sponsorship
Decide on pension plan and trust/investment company
Prepare for pension plan implementation Financial Management - Pension Financial Management - Pension List on Toronto Stock Exchange (TSX)
To increase trading volume
To motivate employees to exercise stock option
To make the stock option benefit more attractive Financial Reporting Establish code of ethics and proper policies
List examples of unacceptable behaviour
Consequences for breaching code of ethics
Annual certification required HR – Code of Ethics Partner with Canadian Beverage Association & Canadian Bottled Water Association
Conduct customer surveys and tasting campaign
Update BB’s website
Revised mission statement
New bottled water
Bobo Bucket’s ads
Corporate Social Responsibility Marketing – Brand Recognition Promote use of new environmentally-friendly packaging
100% recyclable bottles
Eco-labels
Negotiate contracts with schools to be supplier of choice for its bottled water & healthy fruit juices
Partner with local schools to run campaigns on recycling programs Marketing – Corporate Social Responsibility New CRM System
To track authorized discounts
To track marketing initiatives participated
To track marketing expenses IT – CRM System Performance Measurement –
Balanced Scorecard Balanced Scorecard (cont) Financial Forecast 1. Sale of Bottling Plant 2. Pursue Bottled Water Venture Pros
Calravay Spring – Excellent quality, exceptionally pure
Comparative cheaper production price
Sufficient and consistent flow (280-290 litres per min. 152M litres annually)
Established marketing channel
Steady sales growth (bottled water)
Diversifies revenue and product line
NPV $6.8M at 10% Return, 5.3M at 15%, $4M at 20%
EPS from $0.27 to $0.72 in 5 years. (33% average annual growth) 3. Use of Athlete Promotion 4. Purchasing Wonder Snacks (WS) Inc.’s Soft Drink Line 5 . Produce Private Label Juices for Jeezy’s Inc. Bobo Buckets
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