Chocolate Delight is the number one chocolate brand in the UK. Retailing from almost 400 of its own branded stores, Chocolate Delight also sells via 197 franchised outlets and Chocolate Delight Direct (online corporate and costumer delivery). Chocolate Delight’s branded products make the highest profit margin, but the business also makes own-label chocolate products for the likes of Marks and Spencer and Salisbury’s.
Chocolate Delight’s Key Objectives:
– Develop new, innovative products.
– Improve UK performance across all the three distribution channels.
– Improve productivity in operations.
The chocolate market in the UK is mature. Sales don’t tend to change dramatically, though prolonged periods of hot weather are known to depress demand. The market is dominated by some big brands, but also support lots of small, niche operators who specialist in luxury products.
Chocolate sales tend to do well in a recession, but Chocolate Delight found the UK recession a real challenge, particularly at Christmas in 2008. In February 2009 Chocolate Delight reported a 39% fall in half -year profits (to 7.3 million pounds) after it opted to offer significant pricing discounts in response to failure of Woolworth ( chain of retail outlets ) and a sharp fall in consumer confidence. Chocolate Delight was also hit when its largest franchise operator Birthdays Ltd (with 94 Chocolate Delight franchises) went into administration.
Chocolate Delight doesn’t just retail chocolates – it makes it too. So the business is capital intensive. Recently Chocolate Delight had invested 1.1 million pounds in a robotic packaging system and in extensive store refurbishments and new point of sales systems. In hindsight was this a sensible investment? How could profitability be improved?
Chocolate Delight Financials – Annual Summary (2009 – 2007)
£’m 2009 2008 2007
Turnover 214.8 208.1 186.0
Gross Profit 105.0 105.0 100.0
Net Profit 9.7 10.3 8.7
Capital spending 7.1 5.7 5.0
Net Cash Flow -0.5 -1.8 2.0
Inventories at year End 25.9 24.5 18.2
Debtors at Year End 14.1 15.0 12.6
Creditors at Year End 22.6 22.0 20.0
Chocolate Delight Capital Invested £28.7 m £35.1 m £34.9 m
Task 1: Assessing financial performance and improving profitability. ((requires calculations + writing the formula + define it + explain the results. 500 words))
a. Assessing chocolate Delight’s financial performance:
1- using the data in the case study calculate Chocolate Delight’s net profit margin and return on capital for 2008 and 2009.
2- Briefly explain what the results mean for the business.
b. Improving Chocolate Delight’s profitability.
– Discuss ways in which Chocolate Delight could improve its operating profit margin.
Task 2: improving Chocolate Delight’s Cash flow Position. ((requires analyzing, an overall judgment of how they can improve cash flow and profitability and using academic sources to define key terms and business concepts.1000 words))
– Chocolate Delight incurred a net cash outflow in both 2008 and 2009 despite earning operating profits of over £9m in each year. To what extent could the business improve its cash flow without damaging its profitability?
Formulas:( Net Profit Margin: Net Profit/Turnover multiply by 100)
(Return on Capital: Net Profit/Capital Employed multiply by 10).
note: use the power point slides to help you and guide you throughout the assignment and note that this assignment covers Business Finance, Analysis of Financial Statements,Managing Cash Flow and Budgeting. Please write this assignment in a good way i really need the marks and you have all the information that you need.