Page 4: Profit and loss forecast
Given the growing market and a tripling of production capacity, the company's forecast was for a significant improvement in financial return which would generate a rise in ARR.
The company also anticipated that the average cost of each sandwich it produced would fall, because:
- The new factory offers a superior production flow line. Compared with the old factory, less labour would be required to move raw materials and finished stocks.
- Stock levels of inputs are reduced. Just-in-time delivery methods reduce stock wastage e.g. there are 3 bread deliveries daily.
- Stock levels of output are zero. Output leaves the factory immediately on completion.
As a result of the investment appraisal and profit and loss forecast, the Greencore Group Board of Directors was confident the new investment would be a success and approved it.
In making their decision the Board recognised that:
1. The financial projections were soundly based and met the company's investment criteria.
2. The old factory's limitations was holding back growth and losing opportunities for the company.
3. Direct customers (large retailers) wanted a supplier with more extensive state-of-the-art facilities.
4. Superior factory layout would improve efficiency e.g. higher volumes, faster production, fresher quality.