Aggregates Manager Digital Magazine
Issue link: http://read.dmtmag.com/i/742224
AGGREGATES MANAGER / November 2016 33 tons, or 164,000 above forecast. Accordingly, one might have expected the sales and profi ts forecast to have been materially accurate. Reality was far different. Other than the forecast annual sales volumes, both sales revenues and profi ts signifi cant- ly trailed the plan. As indicated by Figure 6, annual sales revenues initially trailed the forecast by nearly $600,000. By the fourth year, it grew to a negative variance of more than $1.6 million. Similarly, fi rst year profi ts trailed the forecast by $450,000, but increased to nearly $1.3 million by the fourth year. Curious how this happened? With 20/20 hindsight, the quarry's primary competitor did not cede market share without a fi ght, aka signifi cant product sales price cuts. As a result, the initial average sales price was less than $5, approximately $1, or 20 percent below forecast. By the fourth year, sales prices had declined an additional $0.50 per ton. As a result of the signifi cantly lower sales prices, the quarry's profi tability (EBITDA) per ton also materially missed the four- year forecast. Conclusions Identifying and determining the impact of these common pitfalls, and others, takes industry experience. Based upon de- cades of experience valuing quarries and mines, it seems an important fi rst step in the valuation process is to normalize its historic sales and fi nancial performance. The recast performance forms an accurate picture of historical performance that can be used as the basis for forecasting future performance. We fi nd that accurately recasting a quarry's or mine's historical performance and preparing a reasonably accurate forecast requires a lot more than a suffi cient data set and due diligence information. Industry experience ensures not only thorough due diligence investi- gations, but the industry knowledge nec- essary to interpret the myriad of historical performance data and the quarry's future potential in context of its competitive environment. Whether you are a buyer, or seller, always remember the lesson from this series: Value is determined by future cash fl ow because cash is king. AM Mike Nowobilski is the president of O'Fallon, Ill.-based Mid-America Energy & Mining Services, Inc., a company specializing in mergers and acquisitions. "The Sizing People"® info@midwesternind.com www.midwesternind.com TOLL FREE ( 9 6 ) | Experience you can trust Over 60 years of servicing the screening industry. Quality products manufactured in the U. .A. creening equipment, screen heaƟng and replacement wire cloth screen panels for most makes and models of screeners. Custom Woven VibraƟng creeners creen Panels Visit Midwestern Ind. Visit Midwestern Ind. at Booth #7012 at Booth #C-31718 MEV®