Presented Bymms.prnasia.com/hkicpa/20131130/winning/champion.pdf · (Ansoff Matrix) Core Competence...
Transcript of Presented Bymms.prnasia.com/hkicpa/20131130/winning/champion.pdf · (Ansoff Matrix) Core Competence...
Presented By: Richie Jue
Christy Fung Harry Lee
Tiffany Tang
Can HFIC Drive Breakthrough? IN FASHION APPAREL INDUSTRY
Working Capital Management & Cash Flow Assessment
Identify Core Competence & Industry Trend
Customer and Suppliers Relationship
Can we reach the financial target of 20%?
Analyze the issue on chairman viewpoint & provide solutions
Section 2 Section 4 Section 3
Section 1
Industry trend
(PEST Analysis)
Value Configuration
(Ansoff Matrix)
Core Competence
Cost Structure Financial Position Revenue Streams
Ratio Analysis Cash Flow Budget
Recommended
Strategies
Distribution
Channel
Supplier
Relationship
Customer
Relationship
Corporate Appraisal
Financial Analysis
Customer & Supplier Relationship Offer
(SWOT Analysis) (Value Chain Analysis)
Section 2 Section 3
Section 1
Working Capital Management & Cash Flow Maintenance Through Ratio Analysis & Budgeted Cash Flow Statement
Financial Analysis
0%
10%
20%
30%
40%
50%
60%
70%
80%
Currentratio
Quick ratio Cash cycle
72% Increase in Cash Cycle!
0% 10% 20% 30%
Days inventory
Days receivable
Days payable
0%
10%
20%
30%
40%
50%
60%
70%
Increase in Days Receivable
& Days Inventory!
20% 10% & Aging Of Receivables Increase!
Working Capital Ratio
Financial Analysis Profitability Ratio
56% Decrease on EPS!
20% Decrease on Working
Capital Turnover!
15% Decrease on ROA!
-60.00%
-50.00%
-40.00%
-30.00%
-20.00%
-10.00%
0.00%
Profit Margin Return onAsset
Return onEquity
EPS Asset TrunoverRatio
AccountReceivable
Rtio
InventoryTurnover Ratio
WorkingCapital
Trunover Ratio
Financial Analysis Cash Flow Ratio
0
0.2
0.4
0.6
0.8
1
1.2
Dividend Coverage
Current Liability
coverage
Total Liability
coverage
N ot Enough
to pay Dividend & Cover Liability
C ash Shortage
is inevitable unless dividend payout ratio can be decrease
Financial Analysis of year 2013
Projected Cash Flows from year 2013-2015 (All figures are in HK$ millions)
2012 2013
Cash flows from opearating activities
Profit before tax 2,751 (1,010)
Depreciation 816 933
Impairment of property, plant and equipment 580 592
Loss on disposal of property, plant and equipment 22 20
Increase in inventory (280) (309)
Effect of changes in foreign exchange rates (84) 30
Other cash flows from operating activities 48 417
3,853 673
Taxation paid (HK and overseas) (1,026) (179)
2,827 494
Cash flows from investing activities
Purchases of property, plant and equipment (1,707) (1,853)
Other cash flows from investing activities 107 110
(1,600) (1,742)
Cash flows from financing activities
Dividends paid (2,695) -
Interest paid (28) (28)
Proceeds from bank loans 2,375 -
(348) (28)
Net change in cash and cash equivalents 879 (1,277)
Cash and cash equivalents at the beginning of the year 4,461 5,170
Effect of changes in foreign exchange rates (170) (196)
Cash and cash equivalents at the end of the year 5,170 3,697
Lowering Profitability may
contribute to less cash
inflow from operating
activities
Less Cash on Hand
Cash Flow Strategies
• Adjust dividend payout ratio to 40% • Offer 50 % Strip Stock Option • Halve Bank loans in 2013 and 2014
Working Capital - Receivable Strategies
• Use early settlement discount on receivables • Factoring on wholesale’s receivables
Working Capital – Inventory Strategies
• Establish ERP (Enterprise Resource Planning) and AMT (Advanced Manufacturing Technology)
• Alliance with core suppliers
Identify Core Competence & Industry Trend Through SWOT/ Value Chain/ PEST Analysis & Ansoff Martix
Corporate Appraisal to Identify Core Competence
Firm Infrastructure
Human Resource Management: Matrix organization structure emphasizing on product management
Technology development: “e-shops” for online selling in several countries
Procurement: Just-in-time system of purchasing and production
Inbound
Logistic: most
are outsourced to supplies
Outbound
Logistic: retail
and wholesale
stores; “e-shops”
Operations:
Top designer
add huge
designing
value on products
Marketing and sales:
advertising campaigns;
collaborating with top
fashion models; advertising
in premium and high
circulation magazines and media.
◆ Austerity policy in EU ◆ Regulations encourage green fashions
◆ Tariff Exemption on product
from southeast Asia countries
◆ Slow economic recovery in EU
◆ Exchange risk from Euro ◆ Economic growth in PRC
◆ Increasing supply cost in PRC
◆ Purchasing culture in PRC: desire for exotic brand
◆ Mcfashion request: Lower price/
more choices & new pattern ◆ Acceptance of green fashion
◆ Resistance on increasing price among EU customers
◆ Board band penetration facilitates online sales ◆ New material (MODAL) facilitate production of green fashion
Corporate Appraisal to Identify Industry Trend
Corporate Appraisal to Identify Industry Trend
Europe
China
Southeast Asia
• Austerity policy continue in EU
• Depreciating Euro (Exchange risk)
• Psychological Acceptance of Green Fashion
• Robust Economic growth • Rising middle-class desire for
exotic lifestyle • Inflation push up suppliers’
price • Competition from Glamour
Fashion
• Tax Exemption from EU countries
• Lower material and labor costs
Corporate Appraisal Six Future Trends
Europe EU market is less attractive than ever before
China
Southeast Asia Cost-saving to
relocate manufacture to Southeast Asia
Chinese market is regarded as high growth region
Green Product Global Fashion trend towards Green Fashion
Online Sales Online shopping becomes a torrent worldwide
Fast Fashion Customers request Lower price; fast goods and more choices
Consolidation (consolidate
souring of goods & supplies)
Developing new product
ranges for existing markets
(denim, swimsuit, sunglass etc.)
Rapid expand business in
the PRC (Establishment of a
new brand for lower price
fashion; alliance with a local
partner)
Rapid expand business in
the PRC (Use existing
product ranges to capture
potential new market shares)
Expansion in Europe
existing product ranges
Corporate Appraisal by adopting Ansoff Matrix
Consolidation Strategy based on improving efficiency and reducing cost
Benefits ★★★★☆ Risks ★☆☆☆☆
• Lower cost • Improve inventory level
• Risk from less suppliers ( Toyota Recall crisis)
High Return & Low Risk
Suitability – Fits with external rising supply price and poor working capital
Acceptability – Yes
Feasibility – distilling existing suppliers
Expansion in Europe with the company’s existing product ranges
Benefits ★★☆☆☆ Risks ★★★☆☆
• Better customer service increase sales
• E-shop sales growth in EU
• Stagnating & Saturated EU market • Considerable amount of
investment
Low Return & Medium Risk
Suitability – Cash flow shortage need to be addressed for expansion strategy
Acceptability – No
Developing new product ranges for existing markets
Benefits ★★★☆☆ Risks ★★☆☆☆
• “Grasp” green fashion trend • New product (denim) help HFIC
catch up with others (Guess, CK.) • Potential product ranges are
crucial for new customers
• R&D investment on customers’ preference
• Existing EU market is not attractive
Medium to High Return & Low Risk
Suitability – Fits with corporate values and ethics (green fashion)
Acceptability – Yes
Feasibility – Additional resources like new design panels are needed
Rapid expand business in the PRC
Benefits ★★★★★ Risks ★★★☆☆
• Global brand equity caters PRC customers’ exotic brand request & purchasing culture
• Hugh potential sales growth in PRC
• Considerable investment on distribution establishment
• Competition from Glamour
Fashions Limited
High Return & Medium Risk
Suitability – Fits with external opportunity: future growth in PRC
Acceptability – Yes
Feasibility – Time and resources are required for new brand establishment
Corporate Appraisal get a comprehensive picture
1) Global reputation 2) Top designers 3) Successful Advertising 4) International recognition of social
and ethical practices
1) Poor working capital management with problematic cash flow
2) High risk of irrecoverable accounts receivable from wholesalers
3) Heavy reliance on declining Europe market
1) Higher Supply Cost in PRC 2) Bad Debt risk from wholesalers 3) Currency exchange rate risk Of Euro 4) Competition from Glamour
Fashions Limited
1) Potential growth market in PRC 2) No market leader in PRC market 3) Future revenue growth and
trend on online sales
Risk Control Strategies
• Invoice EU wholesalers in US$ (solve exchange risk) • Shift sales from wholesales to “e-shops” (avoid heavy reliance on EU market) • Transfer PRC suppliers to Southeast Asia (cushion PRC increasing supply cost) • Reduce suppliers & introduce TQM system (to be cost-saving)
Product Develop Strategies
• Green Fashion ranges development • New Fashion Product ranges development (swimsuit, denim, underwear etc.)
PRC Expansion Strategies
• Alliance with Glamour Fashion Limited • Set up PRC sales headquarter • Expand Retail instead of wholesale business in PRC
Core Competence Enhancement Strategies
• Make “Micro film” starred by foreign top models • Online Advertising for PRC market (Sina Weibo, Youku etc.) • Initiate High Fashion International Fashion Show
Analysis Relationships with customers & suppliers/ Analysis Distribution Channel
How do Customers see us? How should we Choose Suppliers?
Relationships Analysis
Customers do care
• Social Responsibility • Environmental
Responsibility • Ethical Practices • Shopping Experience
Suppliers we choose
• Same Objective? • Supplier’s Code of Ethics (not to be another Foxconn)
Long-term Beneficial Strategies
• Sponsor the third world countries by providing clothes (Nigeria, Ethiopia etc.)
• Initiate “One dollar” Charitable Activity annually • Develop Family Workshop in Southeast Asia (Potential Supplier) • Establish Code of Conducts for suppliers selection • Shop Decoration and Employee Retraining Project
Five Year Implementation Plan for our proposed strategies Can we achieve the financial target 20%?
Implementation Plan From 2013 to 2017
Cash Flow Strategies/Working Capital Strategies/ Risk Control Strategies
Product Development Strategies / PRC Expansion Strategies / Core Competence Enhancement Strategies
Charitable Donation, Sponsor Third World Countries with clothes, employee retraining project etc.
Projected Income Statement
In 2013, we can almost
reach the target
19%
?%
Projected Income statement (in HK$ millions)
2012 2013 2014
Turnover 31,050 32,603 34,232
Cost of goods sold (15,835) (15,043) (14,290)
Gross profit 15,215 17,559 18,838
Occupancy costs (3,625) (3,443) (3,270)
Advertising costs (674) (681) (688)
Other costs (7,410) (7,262) (7,117)
Operating profit before depreciation 3,506 6,174 7,764
Operating profit (befor depre.) to sales ratio 11%
Analyze the issue and provide relevant solutions Standing on Chairman’s viewpoint
Ethical Issue
Relationships of Interested Parties
Rules & Regulations Considerations
HKICPA Code of Ethics
Short-term Long-term solutions
Section 5
Ethical Issue
Kenneth Chan (Chairman)
Mary Leung (Manager of PL)
Jonathan Lu (Deputy Operation Director)
Chris Lee (Operation Director)
Jian Jiang (Officer of SEHK)
Manager in PL, who held HFIC’s shares
Intention to consult
Potential intention for higher position Close friend (bias)
Ethical Issue
Breach the fiduciary duty as a
director
Chris Lee Breach the
statutory duty to disclose
interest
Ethical Issue
Kenneth Chan
As a CPA, Kenneth Chan’s actions should comply with HKICPA Code of Ethics
Integrity: Expose Chris Lee? Take Legal Actions?
Objectivity: Should not consult Jian Jiang & Mary Leung
Confidentiality : Keep Jonathan Lu’s whistleblowing action secret
Professional Behavior: Take Listing Rule of HKEx into account
Additional Consideration: The real intention of whistleblower
Ethical Issue
1) Expose Chris Lee’s misconduct
to the board of directors.
2) Ask board of director to hold special
shareholders meeting to process a
formal dispute resolution.
Board of Director
3) Consult an independent professional
adviser Independent
Advisor
Kenneth
Chan
Ethical Issue
1) Improve Due Diligence Investigation System in management level.
2) Conduct the Declaration of Financial Interests System.
3) Consolidate safeguards in working environment under Code of Ethics.
Section 2 Section 4 Section 3
Section 1
Industry trend
(PEST Analysis)
Value Configuration
(Ansoff Matrix)
Core Competence
Cost Structure Financial Position Revenue Streams
Ratio Analysis Cash Flow Budget
Recommended
Strategies
Distribution
Channel
Supplier
Relationship
Customer
Relationship
Corporate Appraisal
Financial Analysis
Customer & Supplier Relationship Offer
(SWOT Analysis) (Value Chain Analysis)
Section 2 Section 3
Section 1
Financial Analysis
• Improve Working Capital Management
• Solve the problem of cash flow shortage
Corporate Appraisal
• Identify Core Competences • Find the Industry Trends • Identify the market to
explore
Relationship Analysis
• Enhance our Corporate Social Responsibility
• Establish Green Relationships with Suppliers and Customers
HFIC Will Fly High in the Future! IN FASHION APPAREL INDUSTRY