Statement of Financial Performance
Revenue Forecasts for 2016
The revenue figures for 2016 have come from;
- Direct forecasts from new distributors.
- Expectations from Damon Waller, International Sales Agent, based on his knowledge of the particular distributors and dealers, and the markets involved.
- In Japan, New Zealand, UK, Ireland, Denmark and Russia, forecasts have been based on using historic sales data for those markets. In new markets, comparative sales have been used for similar sized markets to project forecasts.
Financial Forecasts, Minimum Funds Raised vs Maximum Funds Raised
The following charts show the last four financial years and forecast to FYE 2020.
The Minimum Funds Raised forecasts are based on raising the minimum amount on offer ($368k) and the Maximum Funds Raised on raising the maximum on offer ($700k).
Raising more equity allows Red Witch to increase marketing spend for longer and to go deeper, and while this will not contribute to initially increasing revenue over the Minimum case, it is forecast to provide additional revenue going out to 2020.
Figures and percentages in the Minimum and Maximum Raise tables have been rounded to the nearest whole number.
Increase in Gross Margin/Cost of Goods
Historically Red Witch hit a gross margin of 52% in the 2012 year, when sales were above $600k. Gross margin is made up:
- Cost of initial manufacturing molds and test production run (for first pedal run only)
- Cost of component parts
- Cost of manufacturing and assembly
- Storage and some freight costs.
Red Witch forecasts the gross margin to increase again and reach a new high of 55% in FY 20 through the costs of components parts reducing through volume purchase, the cost of manufacturing reducing through increased order volumes, and increased efficiencies in storage and transportation resulting in a reduced cost per unit. No price increases have been built into the forecasts.
As each pedal has a marginally different COG, the cost of goods used in the financial forecasts is based on the historical average.
Forecasts Key Underlying Assumptions
- Financial Year End: 31 March.
- Exchange rate: Forecasts are shown in NZ dollars and based on an exchange rate of US.75c to one NZ dollar. Manufacturing costs and international pricing are both in US dollars, and exchange rate gains and losses have been treated as neutral.
- Operating Expenses: Apart from marketing, these do not greatly increase over the next five years apart from a modest increase in staff expenses.
- Marketing Expenditure: A one off boost to marketing is shown in the 2016 and 2017 financial years (and 2018 in the maximum raise case) and from then on marketing expenditure is 10% of revenue.
- Revenue Forecasts 2016: Revenue forecasts for the 2016 year are based on projections provided this year by our International Sales Agent and distributors, as well as forecasts based on historic sales and size of market.
- Revenue Forecasts Year 2017 to 2020: From Year 2017 onwards forecasts are based on analysis of market size, size of distributor and percentage share of the market Red Witch aims to achieve.
- Staffing: Staffing will increase from 2.5 FTE to 4 FTE - taking into account increase in administration/accounts support and a sales and marketing assistant.
- Overdraft: The current overdraft is maintained.
- Product Development: Further product development has been budgeted for (see Manufacturing capability).
- Category Growth: Red Witch is assuming the category (guitar floor-effects) will continue to follow the 10 year average growth (see Size of Market).
- Directors Fees: Will be paid in year two (2017 ) forward and only if the company obtains profitability.
- Global Economy: No account has been made for inflation or deflation in the global economy.
- Average Price: The average unit price is based on current distributor pricing:
- Premium Range NZ $210
- Seven Sisters NZ $95
- Original Chrome Series - Violetta Delay NZ $84, Factotum Bass Pedal NZ $170
- Number of units sold: The table below shows the number of units sold per year (minimum raise).
Previous Capital Rounds
Below is a chart setting out the previous capital rounds. Since 2011 new capital has been introduced at a value of $3.94 per share. Note: the last investment round at this price was the conversion of shareholder loans to equity in March 2015 when the major shareholder International Services and Systems Ltd (ISSL), converted its shareholder loans plus interest to equity at this rate.
In May 2015 Red Witch split the existing shares by 3.94, meaning the company had a total number of existing shares of 2,662,325 at a value of $1 each.
To understand how the March 2015 investment round relates to the May 2015 Snowball Effect crowd funding offer at 66cents per share a simple formula is provided below:
- $3.94 per share in March 2015 - converted to $1 per share in May 2015 with the share split.
- $1 per share is discounted to new investors by 34% = 66cents per share.
*Following the share split the shares now on issue is 2,662,325.
In March 2015, the balance sheet was significantly strengthened by major shareholder ISSL, converting its shareholder loans plus interest to equity. At the end of the financial year 2015, the company had no debt with the exception of a working overdraft (ANZ Bank).
- Currently the ISSL accounts team prepares management accounts for Red Witch with Affleck Dodd O'Meara completing the end of year accounts.
- All large expenses need to approved by the General Manager and then approved by one director.
- All payments also require two signatories which are completed by the General Manager and a Director.
- Monthly reporting is also completed by the General Manger with a summary board report each month and a more detailed one each quarter.
- Budgets are prepared by the General Manager and signed off by the Board.
- Cashflows are generated quarterly.