1. Scenario About the business You are the CEO of a multi-national financial services business. Founded in the UK in the 1980s, the business concentrates on providing specialist insurance, trade finance, and associated services, including consulting, for companies involved in international commodities trading. The business does not have retail customers. Its expertise and focus are business-to-business. Shareholders and company control The compary is listed on the main London Stock Exchange with a roster of institutional shareholders, the largest of which is an insurance company with an 8% stake. You and the other directors collectively own around 2.5% of the company. The value of the shares is 440 million. Trading performance The business's clients are UK based in the main with 85% of the turnover and 90% of the profits after tax coming from UK commodity traders and brokers. There are a few European-based companies that provide the rest of the business. Group turnover is 500 million per annum with net profits at 60 million, and profits, after tax, are 45 million. There is no debt. Cash in the bank totals 89 million at the time of the report. AOCE is 35% Despite this healthy financial position, over the past few years, business growth has stagnated somewhat. Opportunity knocks However, because of your positive reputation, you have been asked on many occasions, to provide services for Australian commodity businesses that export to China. Similarly, Chinese commodities buyers based in London have asked you to provide services for them in their local markets. You feel that you should expand to exploit the Chinese market and believe that, in order to do the job properly, you need to commit to opening a business where commodity buyers and sellers are - therefore in China. Over the years, several of your predecessors as CEO have proposed similar actions. Indeed, once the company did expand into the US market, only to close the operation when commodity prices slumped resulting in client collapses with your company being owed significant fees. Other issues included cultural differences. You view this as a valuable learning experience for the company, rather than a reason not to try and expand again. Board approval You have had the long phone calls and lunches discussing ideas and options. You have gathered the information and have a plan in your mind. You conclude that China is a long-term, super-scale market. You also feel that, in order to compete and be taken seriously, you need to be there physically and culturally. To get the project up and running, you need the full Board of Director's approval in order to propose the expansion to shareholders at the Annual General Meeting. You need to develop a single Board Paper as a business report, covering all the essential information. The report will be reviewed and commented on by two Board committees. These are the Audit Committee (who are interested in the financial impact and the risks of doing business in China and Australia) and the Corporate Social Responsibility (who may focus on wider social and environmental issues). You estimate that, by the third full year, the new business will turnover 150 million per annum with net profits at 48 million, and profits, after tax, will be E31 million. You think the capital requirement for the expansion is in the region of E60 million. The directors have indicated that you can borrow some, or all, of the funding required if you think it is appropriate. They have indicated that they would not support issuing new shares. The Board have agreed that you need to present financial information for the proposal as if it is in the third year only, (you will not need to provide information about years one and two). The board is expecting to see some financial analysis to cover my business, at least the operating profit, return on capital employed, capital, and debt and interest if there is any. 2. Requirement You need to present a proposal to the board of directors of the company to gain their approval for the expansion. They are, generally, a bit risk-averse and medium to long-term thinkers. An expansion of this size requires special shareholder approval, only obtainable at an annual general meeting. Therefore, you only have one opportunity to pitch your proposal. a) short introduction / purpose of the report b) executive summary of the key findings, conclusions, and recommendations c) The main body to cover analysis and arguments including, if appropriate: - Markets, Products, and Channels - this content area may contain adapted content from the Marketing, International Business and Strategy modules. - Operational Impacts - this content area may contain adapted content from the Operations Management and Strategy modules - Financial Impacts - this content area may contain adapted content from the Accounting and Finance and Strategy modules. - Organisational Impacts - this content area may contain adapted content from the Organisational Behaviour and Human Resource Management and Strategy modules d) Limitations - how and where is the data weak? Are there gaps in the scope of your report? e) Conclusions g) Recommendations - remember, you are asking for clear permission to act 1. Scenario About the business You are the CEO of a multi-national financial services business. Founded in the UK in the 1980s, the business concentrates on providing specialist insurance, trade finance, and associated services, including consulting, for companies involved in international commodities trading. The business does not have retail customers. Its expertise and focus are business-to-business. Shareholders and company control The compary is listed on the main London Stock Exchange with a roster of institutional shareholders, the largest of which is an insurance company with an 8% stake. You and the other directors collectively own around 2.5% of the company. The value of the shares is 440 million. Trading performance The business's clients are UK based in the main with 85% of the turnover and 90% of the profits after tax coming from UK commodity traders and brokers. There are a few European-based companies that provide the rest of the business. Group turnover is 500 million per annum with net profits at 60 million, and profits, after tax, are 45 million. There is no debt. Cash in the bank totals 89 million at the time of the report. AOCE is 35% Despite this healthy financial position, over the past few years, business growth has stagnated somewhat. Opportunity knocks However, because of your positive reputation, you have been asked on many occasions, to provide services for Australian commodity businesses that export to China. Similarly, Chinese commodities buyers based in London have asked you to provide services for them in their local markets. You feel that you should expand to exploit the Chinese market and believe that, in order to do the job properly, you need to commit to opening a business where commodity buyers and sellers are - therefore in China. Over the years, several of your predecessors as CEO have proposed similar actions. Indeed, once the company did expand into the US market, only to close the operation when commodity prices slumped resulting in client collapses with your company being owed significant fees. Other issues included cultural differences. You view this as a valuable learning experience for the company, rather than a reason not to try and expand again. Board approval You have had the long phone calls and lunches discussing ideas and options. You have gathered the information and have a plan in your mind. You conclude that China is a long-term, super-scale market. You also feel that, in order to compete and be taken seriously, you need to be there physically and culturally. To get the project up and running, you need the full Board of Director's approval in order to propose the expansion to shareholders at the Annual General Meeting. You need to develop a single Board Paper as a business report, covering all the essential information. The report will be reviewed and commented on by two Board committees. These are the Audit Committee (who are interested in the financial impact and the risks of doing business in China and Australia) and the Corporate Social Responsibility (who may focus on wider social and environmental issues). You estimate that, by the third full year, the new business will turnover 150 million per annum with net profits at 48 million, and profits, after tax, will be E31 million. You think the capital requirement for the expansion is in the region of E60 million. The directors have indicated that you can borrow some, or all, of the funding required if you think it is appropriate. They have indicated that they would not support issuing new shares. The Board have agreed that you need to present financial information for the proposal as if it is in the third year only, (you will not need to provide information about years one and two). The board is expecting to see some financial analysis to cover my business, at least the operating profit, return on capital employed, capital, and debt and interest if there is any. 2. Requirement You need to present a proposal to the board of directors of the company to gain their approval for the expansion. They are, generally, a bit risk-averse and medium to long-term thinkers. An expansion of this size requires special shareholder approval, only obtainable at an annual general meeting. Therefore, you only have one opportunity to pitch your proposal. a) short introduction / purpose of the report b) executive summary of the key findings, conclusions, and recommendations c) The main body to cover analysis and arguments including, if appropriate: - Markets, Products, and Channels - this content area may contain adapted content from the Marketing, International Business and Strategy modules. - Operational Impacts - this content area may contain adapted content from the Operations Management and Strategy modules - Financial Impacts - this content area may contain adapted content from the Accounting and Finance and Strategy modules. - Organisational Impacts - this content area may contain adapted content from the Organisational Behaviour and Human Resource Management and Strategy modules d) Limitations - how and where is the data weak? Are there gaps in the scope of your report? e) Conclusions g) Recommendations - remember, you are asking for clear permission to act