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Hansson Private Label

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Case – Hansson Private Label, Inc.

Question 1: How would you describe HPL and its position within the private label personal care industry? HPL started in 1992, manufacturing personal care products – soap, shampoo, mouthwash, shaving, cream, sunscreen and etc., and selling them under the brand label of HPL’s retail partners, which includes supermarkets, drag stores, and mass merchants.
It is a conservative company similar to other private label manufacturers since the have never had major expansion plan in the past and the only investment opportunities they had evaluated are incremental new product types. They also tend keep the debt at the modest level with facility over 60% of capacity utilization.
HPL is a major supplier for retailers’ private label of personal care products for the company’s $680.7K sales accounts for 28% of $2.4 billion whole sales from retailer’s personal care market. However, if compare to the whole $21.6 billion personal care market, HPL’s share within the retailer’s total $4 billion sales market size accounts for 3% of the industry. Question 2: Using assumptions made by Executive VP of Manufacturing, Robert Gates, estimate the project’s FCFs. Are Gates’ projections realistic? If not what changes might you incorporate? Please see Table 1 for the calculation based on Gate’s estimation.

FCF = Free Cash Flow = Operation CF - Capital expenditure
= EBIT (1-Tax Rate) + Depreciation & Amortization - Change in Net Working Capital – Capital Expenditure

It is not realistic. Main reason is that the contract states a 3-year deal whereas Robert Gate's estimation is based on a 10-year deal. An obvious assumption can be made is that after year three the capacity of the new machine will be no longer as high as estimated. In other words, the revenue generated will be greatly reduced and so be the FCF.
For example, it could be that…...

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