Dec 9th, 2010 Update: Bernard Callebaut returns to market as Papa Chocolat, Calgary Herald. I am not sure what to make of Papa Chocolat as I can’t quite see pass the failed business mess in “Bernard Callebaut”, the business.
Many people were shocked and saddened by the news that Calgary-based chocolatier Bernard Callebaut went into receivership yesterday. (CTV & CBC news with videos) The following are three possible lessons from this sad story.
Lesson 1 – Cash Flow:
Cash flow is one of the most important thing in keeping a business alive. Without a healthy cash flow, one cannot keep a business viable. Leo Donlevy at the University of Calgary’s Haskayne School of Business made a valid point (emphasis added),
“… it appears that growing the business got Callebaut into trouble.
“Many businesses … bought very expensive real estate assets and other assets when times were good,” Donlevy said. “And times went bad, and being the maker of a luxury product, sales probably went down and cash flow dried up, and [Callebaut] got in trouble with his lenders.“
The important thing is to strike a balance on how much to borrow without hurting the viability of a business in the long run. Incidentally, for companies with solid businesses and steady cash flow, the current economic downturn can actually be a good time to renegotiate some long term loans to more favourable rates and terms. And this may also be a good time to establish credit facilities at reasonable rate for future needs when the economy inevitably gets back on its feet. The best time to get a credit line for your business is, paradoxically, when you don’t need the money.
The lessons here are: pay close attention to your cash flow, don’t over extend your borrowing, setup credit facilities/line of credit when you don’t need the money.
Lesson 2 – Investing:
I originally wanted to write a more in-depth article about two chocolate bonds including the Callebaut three series of Participating Notes. I went as far as requesting the term sheet for the Callebaut Notes so that I can review the notes for their investment quality. Unfortunately, because the Callebaut’s audited financial statements are not part of the investor package, I was unable to determine how good/bad Callebaut as a business so I wasn’t able to evaluate its notes.
The fact that the minimum offering for the Callebaut Notes was $3,500,000 with $3,150,000 going to debt repayment, $150,000 to working capital, and $350,000 to debt commissions, also raised some concern in my mind. In hindsight, it is clear why $3.15 million of the $3.5 million was planned for debt repayment.
The lesson here is you shouldn’t feel bad if you don’t understand some investment opportunities and don’t feel comfortable enough in investing in them. Because sometime these “opportunities” may not be good investments at all.
Lesson 3 – Brand
My personal Lovemarks in chocolate are See’s Candies (my childhood favourite) and Bernard Callebaut by the award winning Belgium chocolatier (“a mischievous boy“) living and headquartered in Calgary. I once bought a small bag of Bernard Callebaut chocolate to share with my better half. Ah, when I got home, I think I only left one or two to her. I don’t think I mentioned there was a bag of them.
I don’t know how close I can or should compare Bernard Callebaut with See’s Candies, but I know See’s Candies has been an exceptionally good investment over the years for Warren Buffett. With Bernard Callebaut now in receivership and possibly available at a fire sale price, a really great investment deal may be available.
So if Bernard, the creditors, Deloitte, and potential investors can work out a reasonable deal for all, the Bernard Callebaut brand should survive. And it is very possible that a new owner and management team can turn the company around and keep the Bernard Callebaut brand going for years to come.
Crossed posted as an examiner.com article.