Business Finance - Management Assignment: Business Turnaround Strategy

LEATHERBACK PROSPECTUS

INTRODUCTION

Contents

HISTORY

THE VALUE OFFERING

PRODUCT CATEGORIES

MARKETS

CONCLUSION

STATUTORY COMPLIANCE

INTRODUCTION Leatherback is a small family owned shoe business with a factory based in Pietermaritzburg with a staff of eight people. Turnover over the last three financial years, excluding VAT is given in the table below:

Total Sales Pre VAT:

Established by Steve Croudace in 1988 it manufactured webbing sandals branded as Strops and became a large supplier of sandals into the retail industry. Growing to a staff of 75 people and the factory working with a night shift. In the early 2000’s Steve joined his business to the uniforms apparel company Supply Company. This was dissolved in 2010 with Steve keeping the shoe manufacturing assets, but the Strops brand was retained by the Supply Company, where it has since fallen dormant.

Steve rebranded the business as Leatherback, adding a range of Leather boots, shoes and sandals to the style offering. In 2014 Duncan Stewart bought a minority share of 38% to assist with some re-capitalisation and leadership support. Soon thereafter Steve was diagnosed with cancer and passed away in 2015. Steves widow Celma Croudace hold 62% of the shares.

Duncan and his wife have continued to provide leadership and financial support to the business, sustaining it over a very difficult period. The last eight years have consisted of trying to attract the appropriate leadership talent to take the reins to realise the full potential of the skills and expertise that have been built up within the team. A number of experienced and inexperienced candidates have been tested, with very few of them offering a successful long-term prospect.

It has been decided to continue with this quest as we feel that it has merit and considerable possibility if placed in the right hands. This small manufacturing business that produces high-quality footwear represents considerable value and opportunity with the right leadership and entrepreneurial passion.

History

Staff The staff complement of seven people consist of an experienced production supervisor, three machinists a shoe laster and two support staff. This small team embodies a knowledge and capability to manufacture a range of up to forty different footwear designs.

THE VALUE OFFERING

Premises The factory was moved from its initial location in Mafakathini (near Mpophomeni) to central premises Pietermaritzburg in 2018. The premises at 250 Hoosen Haffajee (Berg St) consist of a generous factory area, office, two stock rooms and factory shop with street frontage. Total area is 170 sqm with a negotiable rental of R 6 000 per month.

Equipment All the necessary equipment of cutters, lasters, industrial sewing machines, scyving and trimming machines are available. We also have lasts and knives for the manufacturing of 40 different styles of sandals and shoes. An inventory of this is attached.

For decades we have made customised rowing shoes for boat manufacturer Macarbe Racing based at Wemmerpan in Johannesburg. We make two styles that wholesale at between R800-R900 per pair. Recent orders are:

PRODUCT CATAGORIES

The opportunity exists for supplying other local manufacturers and for export as well as directly to rowing clubs. These opportunities have not been pursued.

ROWING SHOES

We are tooled up to manufacture six different styles on 2-3 layers of EVA making for hard wearing long-lasting products perfect for outdoor activities. The opportunity exists to modernise the design by placing the upper on a lightweight composite sole. This is the foundation of the wholesale business supplied as summer wear to private junior schools. They are standard issues to field staff at Ezemvelo KZN, but the agent's contract has lapsed over the last year, coupled with departmental funding constraints. They are also supplied through agents as staff issues to tourist lodges in Africa. Most customers are of long standing and minimal effort has been put into finding new customers.

Webbing Sandals (STROPS)

We are fully tooled for making boys and girls shoes and leather sandals for both junior and adult sizes. As well as ladies lace-up leather “nurses shoes”. We have one regular wholesale customer who buys shoes for cleaning staff, but have not secured regular wholesale business for closed shoes for uniforms. Difficult for a leather product to compete on a price basis with a mass-produced product. Although quality is superior.

School Shoes & Work Wear

We have comfortable designs of men’s and ladies gusseted and lace-up boots for hiking and outdoor wear. These are on bucket soles and hand stitched. These can be manufactured at reasonably competitive prices relative to the mass-produced options.

Leather Boots

We have developed a range of men’s and ladies casual shoes, vellies, pumps, boat shoes and baby dolls in a range of colours. These do reasonably well in the retail market. We have attracted some attention from independent retailers, but these are notoriously bad payers.

Casual Leather Shoes

MARKETS Traditionally the business relied solely on wholesale markets and we have been able to develop some retail options over the last five years. We have a permanent stall, in an excellent position, at the Shongweni market, where we sell shoes every Saturday. We have a factory shop at 250 Berg Street in central Pietermaritzburg. We have a long-standing relationship to provide consignment stock to an independent retailer in Vryheid. We have started an online sales portal on three occasions, with reasonable to limited success, but all three attempts have stalled for a variety of reasons related to support capacity. This option has considerable potential with the right expertise.

FIXED MONTHLY COSTS

STATUTORY COMPLIANCE The company is fully compliant with UIF. We have a liability of R 70 000 on VAT. Annual financial statements have not been compiled since 2018 although income tax returns have been submitted.

PROPOSED SALE PRICE The owners are offering to sell the business for a total value of R 600 000

CONCLUSION This small business represents a good opportunity for an existing shoe or apparel manufacturer to add these skills and styles to their existing operations. Alternately a young entrepreneur with ambition and passion could take the available manufacturing capacity and with a strong sales determination craft a sustainable business. The present owners are prepared to retain a minority stake and assist the new owners with mentorship and training. They do however no longer wish to provide the continuous leadership that the business needs.

LEATHERBACK PROSPECTUS

INTRODUCTION

Contents

HISTORY

THE VALUE OFFERING

PRODUCT CATEGORIES

MARKETS

CONCLUSION

STATUTORY COMPLIANCE

INTRODUCTION Leatherback is a small family owned shoe business with a factory based in Pietermaritzburg with a staff of eight people. Turnover over the last three financial years, excluding VAT is given in the table below:

Total Sales Pre VAT:

Established by Steve Croudace in 1988 it manufactured webbing sandals branded as Strops and became a large supplier of sandals into the retail industry. Growing to a staff of 75 people and the factory working with a night shift. In the early 2000’s Steve joined his business to the uniforms apparel company Supply Company. This was dissolved in 2010 with Steve keeping the shoe manufacturing assets, but the Strops brand was retained by the Supply Company, where it has since fallen dormant.

Steve rebranded the business as Leatherback, adding a range of Leather boots, shoes and sandals to the style offering. In 2014 Duncan Stewart bought a minority share of 38% to assist with some re-capitalisation and leadership support. Soon thereafter Steve was diagnosed with cancer and passed away in 2015. Steves widow Celma Croudace hold 62% of the shares.

Duncan and his wife have continued to provide leadership and financial support to the business, sustaining it over a very difficult period. The last eight years have consisted of trying to attract the appropriate leadership talent to take the reins to realise the full potential of the skills and expertise that have been built up within the team. A number of experienced and inexperienced candidates have been tested, with very few of them offering a successful long-term prospect.

It has been decided to continue with this quest as we feel that it has merit and considerable possibility if placed in the right hands. This small manufacturing business that produces high-quality footwear represents considerable value and opportunity with the right leadership and entrepreneurial passion.

History

Staff The staff complement of seven people consist of an experienced production supervisor, three machinists a shoe laster and two support staff. This small team embodies a knowledge and capability to manufacture a range of up to forty different footwear designs.

THE VALUE OFFERING

Premises The factory was moved from its initial location in Mafakathini (near Mpophomeni) to central premises Pietermaritzburg in 2018. The premises at 250 Hoosen Haffajee (Berg St) consist of a generous factory area, office, two stock rooms and factory shop with street frontage. Total area is 170 sqm with a negotiable rental of R 6 000 per month.

Equipment All the necessary equipment of cutters, lasters, industrial sewing machines, scyving and trimming machines are available. We also have lasts and knives for the manufacturing of 40 different styles of sandals and shoes. An inventory of this is attached.

For decades we have made customised rowing shoes for boat manufacturer Macarbe Racing based at Wemmerpan in Johannesburg. We make two styles that wholesale at between R800-R900 per pair. Recent orders are:

PRODUCT CATAGORIES

The opportunity exists for supplying other local manufacturers and for export as well as directly to rowing clubs. These opportunities have not been pursued.

ROWING SHOES

We are tooled up to manufacture six different styles on 2-3 layers of EVA making for hard wearing long-lasting products perfect for outdoor activities. The opportunity exists to modernise the design by placing the upper on a lightweight composite sole. This is the foundation of the wholesale business supplied as summer wear to private junior schools. They are standard issues to field staff at Ezemvelo KZN, but the agent's contract has lapsed over the last year, coupled with departmental funding constraints. They are also supplied through agents as staff issues to tourist lodges in Africa. Most customers are of long standing and minimal effort has been put into finding new customers.

Webbing Sandals (STROPS)

We are fully tooled for making boys and girls shoes and leather sandals for both junior and adult sizes. As well as ladies lace-up leather “nurses shoes”. We have one regular wholesale customer who buys shoes for cleaning staff, but have not secured regular wholesale business for closed shoes for uniforms. Difficult for a leather product to compete on a price basis with a mass-produced product. Although quality is superior.

School Shoes & Work Wear

We have comfortable designs of men’s and ladies gusseted and lace-up boots for hiking and outdoor wear. These are on bucket soles and hand stitched. These can be manufactured at reasonably competitive prices relative to the mass-produced options.

Leather Boots

We have developed a range of men’s and ladies casual shoes, vellies, pumps, boat shoes and baby dolls in a range of colours. These do reasonably well in the retail market. We have attracted some attention from independent retailers, but these are notoriously bad payers.

Casual Leather Shoes

MARKETS Traditionally the business relied solely on wholesale markets and we have been able to develop some retail options over the last five years. We have a permanent stall, in an excellent position, at the Shongweni market, where we sell shoes every Saturday. We have a factory shop at 250 Berg Street in central Pietermaritzburg. We have a long-standing relationship to provide consignment stock to an independent retailer in Vryheid. We have started an online sales portal on three occasions, with reasonable to limited success, but all three attempts have stalled for a variety of reasons related to support capacity. This option has considerable potential with the right expertise.

FIXED MONTHLY COSTS

STATUTORY COMPLIANCE The company is fully compliant with UIF. We have a liability of R 70 000 on VAT. Annual financial statements have not been compiled since 2018 although income tax returns have been submitted.

PROPOSED SALE PRICE The owners are offering to sell the business for a total value of R 600 000

CONCLUSION This small business represents a good opportunity for an existing shoe or apparel manufacturer to add these skills and styles to their existing operations. Alternately a young entrepreneur with ambition and passion could take the available manufacturing capacity and with a strong sales determination craft a sustainable business. The present owners are prepared to retain a minority stake and assist the new owners with mentorship and training. They do however no longer wish to provide the continuous leadership that the business needs.