Body Shop

The Body Shop International

Question 1

Our forecasts were derived as follows:

• understanding the nature of the “problems” that persist;

• understanding and assessing the newly implemented strategic initiatives against realistic assumptions;

• analyzing historic growth trend of the company since 1999. Revenue CAGR was some 11% for FY99-FY01, we considered the sustainability of this in light of the increased capex spend in 2000 (some 5% of Revenue) which we believed contributed to the 13% revenue growth in FY01;

• analyzing the cash flow status of the company and the debt ratios as well as understanding the significant growth of 20% in earlier years and significantly lower growth of 8% in recent years;

• putting ourselves in Anita’s shoes to determine her vision of the business and which areas were critical to her e.g. improved profitability, maintaining brand recognition and not falling out with financiers amongst certain others;

• Improving working capital efficiencies realistically and for sustainability;

• Impacts of inflation is included across all areas.

Maintaining a simplistic approach to forecasting we considered the competitive landscape, maturing market, economic environment, growth opportunities and opportunity cost of not growing aggressively. With increased competition margins and cash flow can come under pressure if an aggressive growth strategy is followed. We focused on improving working capital so as to effectively finance debtors with creditors which is currently not the case. Importantly, we ensure that irrespective of growth trends, we maintain our GP% at 60%. Our view here is that BS is a quality brand and as such attracts a premium and which should be maintained, changing/reducing margins etc. may impact this view and could negatively impact revenue growth.

All our assumptions are premised off the notion that we keeping things simple, au natural, and reinforcing basics so as to improve profitability, cash flow, maintain brand...