Hansson Plan

Bambie Lee

FIN 6996: Sec: 001

Corporate Financial Strategies  

Hansson Private Label

Background

• Hansson Private Label started in 1992.
• Purchase their first set of manufacturing assets from Simon Health & Beauty Products
• Hasson was a serial entrepreneur for 9 years
• Bought HPL for $42 million ($25 million equity & $17 million debt) – largest single investment
• Hansson believed the purchased was significantly less than the replacement costs for assets
• HPL was confidently label as a private-label growth

HPL’s development and success

• Main Focus

• Manufacturing efficiency
• Expensing management
• Providing the best customer service
• Turning HPL into a successful company

• Being able to secured major national and regional retailers as customers
• Conservative expansion of Hasson Private Label

• Opening new facility if capacity utilization is >60%

• All current operations is >90% capacity

HPL’s Business Operations & Performance

• Manufacturer many personal care products under the brand label of HPL’s retail

•  For example, soap, shampoo, mouthwash, shaving cream, sun screen and etc.

• Generated about $681 million (revenue) in 2007

• 28% of total wholesale sales of $2.4 billion

Situation

• $170 million investment proposal
• Land acquisition ($16 million)
• Plant construction ($56 million)
• Manufacturing equipment ($52 million)
• Packaging equipment ($24 million)
• Working capital for yr 1 ($22 million)
• Customer will only commit to a 3-yr contract
• Hansson go/no-go commitment within 30 days

Dilemma

• Determine return on the investment to justify effort and risk
• Risk future opportunities from rapid growth and significant value creation by locking in strong relationship with huge, powerful retailer
• Maintain debt at modest level to contain risk of financial distress in the event the company loses a big customer

Industry Trends: (Personal Care Product Market)

• Personal care market

• Hand & body care, personal hygiene, oral hygiene, and skin care products

• US sales ~ $21.6 billion in 2007
• Volumes increased (<1%) in each of past 4 years
• Dollar sales growth (driven by price increases) averaged growth of 1.7% annually the past 4 years
• Featured numerous national names (high-end to low-end) with considerable brand loyalty

Industry Trends: (Private Label Industry)

• Private label brands

• Retailers manufacturers controlled production, packaging and production of goods
• Quality improvements in private label goods led to increased acceptance by customers
• Private label sales exceeded $70 billion in 2007

Benefits of Private Label:

• Increase profits by capturing a greater share of value chain
• Manufacturer profits per unit could double those of retailer (esp. if brand was famous)
• Retailers’ cost of goods was 50% lower than branded goods -> can double profit-per-unit sold despite lower selling prices
• Opportunity for growth (sales of private label goods <5% in many product categories)