The five-year plan, and how wide the range is
Illustrative figures.
In July the supplier rolls its five-year plan forward from the landing in “Where the year will land”: net-net sales of 51,641 and EBIT of 2,263 thousand euros this year. Three scenarios differ in four assumptions: volume, net price, cost per case and operating costs. The plan is set for the company as a whole, and every product moves with it: in the base scenario, laundry capsules at Retailer A go from 5,415 thousand euros of net-net sales this year to 5,633 in year 1.
The headline
By year 5, EBIT runs from 1,426 thousand euros in the downside to 4,956 in the upside, and the value of the business from 11,239 to 38,439. Net price against cost per case explains most of the gap.
Three scenarios over five years (EUR thousand, unless stated)
| Scenario | Volume, a year | Net price, a year | Cost per case, a year | Operating costs, a year | Net-net sales, year 5 | EBIT, year 5 | EBIT, % of net-net |
|---|---|---|---|---|---|---|---|
| Downside | +0.5% | +1.8% | +2.2% | +2.8% | 57,885 | 1,426 | 2.5% |
| Base | +2.0% | +2.0% | +2.0% | +2.5% | 62,950 | 3,242 | 5.2% |
| Upside | +3.0% | +2.2% | +1.8% | +2.3% | 66,748 | 4,956 | 7.4% |
| This year (landing) | 51,641 | 2,263 | 4.4% |
Free cash flow, and the value of each scenario
| EUR thousand | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Years 1 to 5 | Value |
|---|---|---|---|---|---|---|---|
| Downside, free cash flow | 1,367 | 1,223 | 1,071 | 910 | 739 | 5,310 | 11,239 |
| Base, free cash flow | 1,493 | 1,597 | 1,707 | 1,823 | 1,944 | 8,564 | 24,998 |
| Upside, free cash flow | 1,625 | 1,956 | 2,315 | 2,703 | 3,122 | 11,721 | 38,439 |
From the downside value to the upside (EUR thousand)
Year one against the budget’s targets
| EUR thousand | This year’s budget | This year’s landing | Year 1, base | Change on the landing |
|---|---|---|---|---|
| Net-net sales | 52,792 | 51,641 | 53,727 | +4.0% |
| Gross margin | 11,471 | 10,708 | 11,140 | +4.0% |
| EBIT | 2,906 | 2,263 | 2,503 | +10.6% |
Year one becomes next year’s budget targets. The budget is built against them, and it can’t be locked while its net-net sales sit more than 2% from the strategy target, unless someone overrides it on record.
What the figures say
Price against cost
Net price and cost per case explain 74% of the range. In the downside, net price grows 1.8% a year and cost 2.2%: EBIT falls to 1,426 by year 5.
The rate matters too
At a discount rate of 9.0%, the base is worth 24,998 thousand. At 8% it would be 29,262; at 10%, 21,803.
Year one, held to the budget
Year one asks for EBIT of 2,503 thousand, 10.6% above this year’s landing and 403 below this year’s budget.
Key tables export to Excel with their formulas. Illustrative figures. Value means the value of the business before its debt, at the end of this year: free cash flow for years 1 to 5 after tax at 20%, and the years after growing 2.0% a year, all discounted at 9.0%. Capital spending is 2.5% of net-net sales; working capital moves with sales.
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