Arab Academy for Science and Technology and Maritime Transport - Graduate School of Business - MBA -Alexandria

Comprehensive Exam

Professor: D. Sherif Delawar

Hossam El Din Hafez Mohamed Abd El Ghafar+20 1003135591

Hossam-hafez1@hotmail.com

Group: (A)

Major: Supply Chain

No. of registration: 11135071

Introduction

The Middle East has become one of the most dynamic and lucrative confectionery markets in the world nowadays because of many reasons: - A huge consumption for sweets lead to an increase in confectionery sales in the region (15:

20 %annually).- The Middle East accounts for nearly 9% of the world’s population and population growth is

expected to continue at a fast pace, by 2050, the population is forecast to increase by 60% reaching 692 million.

- U.S. and European Union have reached a number of trade agreements and cooperation with partners in the Middle East.

- The successful experiments for Cadbury, Nestlé and Mars and other multinational market leader in the world encourage our company to penetrate the region.

Especially Egypt is a promising market to penetrate because of: - Population about 85 million nowadays with a high growth rate increase.- Huge government support for new FDI.- Confectionery market is valued at 415 m $ in 2011, up 10.7% from 2007 with average

annual growth rate 2.5% which consider a high promising market. So we will focus on Egypt as our new market expansion.

Egypt PESTEL Analysis(Segment + or – from the perspective of the company)

Environmental:- Emission intensity (kg CO2 per USD) 0.39 - CO2 emissions (metric tons CO2 per capita) 2.13

& Ranked as 76 as a member of the ‘Fossil-fueled’ country grouping, Has challenges include an insufficient electricity capacity to meet the demand and no reserve capacities, low energy efficiency especially in the industrial sector. (-)

- Egypt has a hot desert climate, generally dry. Temperatures are hot in summer & warm or mild in winter, warm in summer nights and cool in winter nights, attracting tourists for all over the world which an open market for our luxury products. (+)

Economic:- Industrial sector (37.4% of GDP) due to care of industries and governmental incentives. - Average borrowing rate 9.75 % according to the CBE for financing which consider high rate. (-)- Inflation rate at November 2013 10.44% accelerated from 10.15 percent in October, mainly

due to higher food prices. (-) - Unemployment rate Ranked as 56 all over the world with unemployment rate reach to 13.4 %

of total population offering big bowl of talents. (+)- New renewable energy resources care as installed capacity: Hydropower 2.84 GW – Wind 365

MW – Solar 4.5 MW to solve the current problem of energy. (+) - GDP-Per capita income (PPP) is $6,600 (2012) only relatively low according to region.  (-) Technological:- New law for the protection of intellectual property rights, namely Law no. 82/2002 useful for our

new innovations for the country. (+) - Internet penetration rate grew from 5% in 2004 to 24% in 2009. Ranking 110 globally will be

useful for marketing campaigns through social networks. (+)- A US$1.1bn, three-year plan to make the country a regional information technology (IT) hub

was announced in 2000 and Egypt became the 59th member of the WTO IT Agreement in

April 2003, fixed lines in operation run by Telecom Egypt increased from 510,000 lines to 9.2m & three mobile companies’ networks which is sufficient telecommunication infrastructure. (+)

Political & Legal:- Egypt continues a process of political transition. The country has undergone dramatic political

changes since the 2011 revolution, during those three years many governments take the lead for a while, which show us the unstable governmental environment and long term programs and decisions related to investments.  (-)

- Egypt’s cabinet approved amending the anti-monopoly law to increase the fine for violations by 500 per cent, to at least LE300 million ($50.8 million) compared to LE50 million ($8.4 million) previously to open the market for our expansion with no monopoly. (+)

- The new Income Tax Law No. 91 of 2005: income tax rate on the net yearly profits for juristic persons from 40 per cent to 20 per cent which is high rates to affect our profits. (-)

- Investment incentives: Regulatory incentives: Guarantees against nationalization, expropriation and price controls & Fiscal incentives: an Exemptions equal to paid-in capital of publicly listed companies - Exemption for reinvestment of profits from sales of capital assets - Reduced import duty on equipment needed to carry out the investment. (+)

- Egypt acceded to the GATT in 1970. Presented the Uruguay Round Agreements and became a WTO Member with dealing with new low tariffs and low exemptions for our exports & imports. (+)

Sociocultural:- Many of Egyptians begin to adopt lifestyles similar to Americans and Europeans; they become

prime targets for foreign companies with products have new tastes with high expenditure on foods & beverages, they can be loyal to our products quality. (+)

- There is a welcoming culture for any foreign product imported or carry the brand name of the foreign company even its operations in Egypt (take the opportunity of new experiments). (+)

- New investments are important for work force expectations to improve their careers because of the low investment traffic after the 25 Jan revolution and political instability. (+)

- Age structure: 0-14 years:32.5%-15-24 years:18.2%-25-54 years:38.1%-55-64 years:6.5%- 65 years and over: 4.7% which a perfect for our products targeting & Population growth rate: 1.922% & Population estimated by 80.72 M concentrated at 27cities only all over Egypt which consist less than 5 % of Egypt (2012) this is a huge market to penetrate in a specific regions and areas. (+)

- Life Expectations: Total population: 72.93 years - male: 70.33 years - female: 75.66 years (2012) which guarantee long loyalty programs for our customers. (+)

- Living wage as the current new law of minimum salary level with 1,200 LE appropriate for our marketing mix.

- Religions are Muslim (mostly Sunni) 90%, Coptic 9%, other Christian 1% with prohibition of alcohols for both and pork for Muslims only to play on niche market.

- A culture rich with customs, religious celebrations, family gatherings and festivals. The two main Islamic holidays are Eid Al-Fitr (Festival of the Breaking of the Fast) and Eid Al-Adha (Festival of Sacrifice), Christmas and New Year’s celebrations for gifts purchasing habits. (+)

- The presence of large multinational retail chains such as Carrefour, which lead to revolutionizing the retail industry in Egypt by introducing the hypermarket format. (+)

- Languages are Arabic (official for labeling), English and French widely understood by educated classes.

- Literacy level: Total population: 72%-Male: 80.3%- Female: 63.5% (2010 est.) for marketing campaigns and using image methods instead of words. (-)

INDUSTRY ANALYSIS (5 Forces)

1) The Threat of New Entrants (Low) Presence of large capital requirements that is required in the chocolate and cocoa industry

because of high level of automation and diversification. The chocolate and cocoa industry does have a significant economy of scale entry barrier

because large companies exist in the industry that has high production output, which reduces the cost to produce chocolate and cocoa.

• Switching the supplier of chocolate’s raw materials such as cocoa beans, sugar, and milk create additional testing and research that must be completed by the company to ensure correct quality, safety and taste.

• Distribution Access as hyper market and other main distribution channel depend on brand identity which increases the barriers.

===============2) Bargaining Power of Buyers (Medium)

Buyer has the power to play competitors against each other and reduce the cost. But the chocolate and cocoa industry has a differentiated product, which reduces the power of buyers. The industry has several large players that have brand identification and customer loyalty, which makes it hard for buyers not to use a particular supplier.

===============3) Bargaining Power of Suppliers (Medium)

•The suppliers of the chocolate and cocoa industry have significant bargaining power over the industry because of the limited number of these suppliers. Because the cacao tree is grown in areas that have a tropical climate, many players in the industry are forced to import the product, Tropical climates are often at risk for natural disasters, such as hurricanes, which can dramatically reduce the number of suppliers.• The dependency of the industry’s product on the suppliers’ product with no other substitutes. The chocolate and cocoa industry relies on suppliers to deliver high quality products that meet food regulations and consumer taste tests. If the suppliers’ product is not available or does not meet the quality expected, the industry will suffer greatly•The chocolate and cocoa industry is an extremely important customer of its supplier group (important export). The bargaining power of the suppliers is reduced because of the importance of the chocolate and cocoa industry as a customer.

===============4) Threat of Substitute Products and Services (HIGH)

•The chocolate and cocoa industry must compete with numerous substitute products that can threaten the industry’s profitability. Alternate cooking flavors are a substitute product to chocolate and cocoa. As: vanilla, lemon, butter, or mint flavoring. Another category of substitutes is snacks. Many non-chocolate snacks are available, such as peanut butter, fruits, potato chips, etc.• Competition with other substitute products in the retail arena. Specialty chocolate and cocoa products are used as gifts during numerous seasons, celebrations, holidays, anniversaries and birthdays. Other types of gifts during these seasons are viewed as substitute products. These products are flowers, fruit, jewelry and stuffed animals.

===============5) Intensity of Rivalry among Competitors in an Industry (HIGH)

•An industry’s competitor rivalry is increased if there are numerous competitors or if the competitors are equally balanced with slow industry growth (mature market) (Main globally players are: mars – nestle – Cadbury & Hershey’s), this condition creates a strain on raw materials and consumer groups, advertising competition and price wars.

SWOT Analysis

Strengths Weaknesses Diversified products lines for Many

Different collection of products to all tastes.

Technological improvements within chocolate factories allow for optimum production and efficiency within distribution.

Hershey marketing strategy Characterized by strong brand equities, product innovation, and superior quality of the products, manufacturing expertise, and mass distribution capabilities abilities.

Product packing is catch in mind of customers according surveys.

Hershey’s global market share in the chocolate confectionary industry is only 10 percent, lowest among its competitors.

Existing players in the market created a customer loyalty base.

Centralized structure with no delegations responsibility (Bureaucracy and slow decision making).

Brand awareness is low in Egypt. Low global expansion mind set. Inside company Culture obstacles

(Opponents for changing).

Opportunities Threats The ability to export to other Middle

East companies. Increased consumer demand for

healthy, organic and premium/upscale chocolate.

High unemployment rate & high career Expectations for workforces.

Moderate climate and high tourism traffic.

Internet available for works and household sector for marketing methods.

Good Telecommunication Infrastructure.

Special incentives for new companies (Regulatory & Physical).

Good Attitude toward foreign companies & welcoming culture.

New lifestyle changes appeared. High growth rate of population – Age

distribution of population (high middle & youth rate) – Regional shifts in population (Cities) - High life Expectations.

Many multinational retailers (as: Carrefour).

Low threat of New Entrants. Medium Bargaining Power of Buyers

Huge capital required to establish the new plant.

Difficulty to acquire a local firm at the moment.

Cadbury Schweppes is an Egyptian market leader with a market share of 50%.

The main competitors of Hershey Foods are Mars and Nestle. Mars is already a threat for Hershey, because Mars has a stronger presence than Hershey in Europe, Asia, Mexico, and Africa Japan.

High interest rates for financing by loans.

High inflation rate. High taxes rates. Instability of Government and political

conditions. High illiteracy level. Low energy efficiency at industrial

sector. Medium (Relatively high) bargaining

Power of Suppliers. High threat of Substitute Products

and Services. High intense rivalry among

Competitors in an Industry.

Corporate Overall Strategies

Business Level Strategy: Adapting competitive strategy and especially differentiation strategy (Differentiation - Broad Target) Their strong brand equities, product innovation, superior quality of the products and manufacturing expertise, create customer value under this strategy affirm deliver superior quality goods for a broad market, profits comes from premium prices charged for truly differentiated products by using innovation & marketing to appeal to changing consumer tastes. This strategy guarantees long term growth.

Corporate Level Strategy:The corporate should uses Directional strategy - Growth – Concentration – Horizontal Integration – Market Development. (By using a Green Field Development for building our own manufacturing plant with a future plan for integrating vertically)As the growth strategy enhances the co. leading position in confectionary industry & increases profits and sales.co should well communicate its product to customers and that will be through creative selling, marketing and merchandising techniques.

This growth strategy should be supported by a Global Strategy at a certain degree, where the company should adapt a product that can be tailored according to Egyptian consumer preferences & level of income (Hershey bar are stiff & it doesn’t melt like European chocolate) therefore moving along the continuum from multi- domestic to globalization) as Nestle company did it follows world consumption trends & develop product to meet consumer needs & Mars about the same range of core products worldwide with certain adaptation to local needs.

(Reasons for applying a global strategy: All competitors are pursing such strategy to some extend forcing the co. to match with them - Common customer needs allow product standardization & ease to penetrate different markets with some adjustment according to Egyptian consumer need and preferences - Distribution channel also expand the international scope of confectionary manufactures such as Wal-Mart global branches – Economics of scale production through minimum number of plants with high initial investments and marketing to many countries need global strategy to manage as a result of globalization).

Marketing PlanMarketing Objectives:

It will be divided into 2 terms, short term and long term. A. Short Term marketing objectives (1 Year time) Product will be available in at least 10 local convenience stores and large grocery chain in

each potential city. Increase introduction promotion in the local area through social media and local news

media. Set a market share by 15%. Required profit margin by 13%. Maintain the good relationship with the retailers.

B. Long Term (5 Years time) Increase numbers of shops by 25% Increase our market share to reach a 20% Develop our strategy so it contains a vertical Growth by acquiring a key supplier in the

market and owning our own disruption channels and wholesalers. Improve supply chain and productivity. Provide the market with new products, size and flavors. Exporting our product to other countries in the Middle East especially to Saudi Arabia &

UAE due to the great growth potential for these countries.

Market Segmentation & Targeting: As we penetrating a new region we need to focus on following segments:

Age from 5 to 60Specific Middle & Upper class consumers, Children,

Teenager, Women, Athletes.Income Above 1200 LE Per month Location All Cities

Targeted expected bases are approximately: up to 10 million child and teenagers - 12 million women - 1.5 million athletes.

We can Reassures from our positioning on our customer’s perception through continuous surveys and questionnaires to improve our position if needed.

Marketing Mix (4 P’s) 1- Product :

As mentioned earlier our strategy should be product differentiation, products to be produced:

Product type Exacted Quantity to be sold Batching time in months

Dark & White chocolate pars 30 Million U 2 Months

Digit Chocolate 7 Million U 1 Month

Baking Chocolate 5 Million U 15 days

Ice creams toppings 7 Million U 1 Month

Lollipops 3 Million U 1 Month

cookies Sank Nuts 6 Million U 2 Months

Hard candies 17 Million U 3 Months

Chewing Gum 5 Million U 2 Months

All previous products would be produced with Different size and Flavors. Batching time depends on how the consumer appreciates our products & the collection

period from our customers & the duration of acquiring raw materials. The row materials will be used from the local market in order to reduce the import expense,

our products is going to be distributed to the final consumer through cafes, malls, supermarkets, we want to reach every place in Egypt.

In rural areas most confectionary retailers in these markets aren’t equipped with refrigerators which cause serious problems for the storage of confectionary especially chocolate products so it could be distributed as gifts with usage contracts.

2- Price :The following is a list of the expected cost we are going to afford in the first year of our expansion in Egypt:

Item Total cost per Million

COGS %Average price for Raw material 94 LE 34% of GOGS

Average price for Production Cost 102 LE 36% of COGSAverage packing costs 28 LE 10% of COGS

wages and salaries expenses (Direct labor)800 worker for 8 Production lines with minimum salary of 1500 LE

14LE 5% of COGS

Distribution expenses 42 LE 15% of COGSTotal GOGS 281 Million EGP 67% of T. COST

SG&A (including wages and salaries of Indirect labor , BOD and advertising expense )

94 EGP 22% of total expenses

Depreciation Expense& Impairment exp 30LE 2% of Total expenses

Interest Expenses (10% annual interest rate) 20LE 5%of Total expenses

Tax Expenses 13 3%of Total Expense

Total expenses 418 Million LE 100%In order to achieve our marketing objectives, then Expected sales to achieve a 15% of the confectionary market in Egypt would be 469 million EGP, to be achieved as follow:

The following are price about our products expected sales or the following year:

Product Nameaverage price per

unitQuantity sold per year

( # per million )sales figure

(# per million )

Dark & White chocolate pars 8 LE 23 u 184 LE

Digit Chocolate 10LE 5 U 50 LE

Baking Chocolate 9 LE 4 U 36 LE

Ice creams toppings 5 LE 6 u 30 LE

Lollipops 3 LE 2 u 6 LE

cookies Sank Nuts 8 LE 5 u 40 LE

Hard candies 8LE 15 U 120 LE

Chewing GUM 0.25 LE 3 u 3 LE

Total Sales for the first year 469 million EGP

Prices set to cover the Initial investment cost putting into consideration the average prices in the local market set by our main competitors, rising prices for Raw materials and other expenses however we could control the price of the row materials thought such as coca and milk, by futures vertical integration.

3- Place:

The location that was chosen to build our factory will be at 6 of October the industrial zone are in Cairo, due to the following reasons: Far from a population area & crowded areas – center for distribution purpose - One of the largest industrial territories in the region - No electricity, water and logistics problem for the huge governmental care. Initial investment cost for the plant would be as following:

Banks long term loan With 100 Million EGP + Self financing with 150 Million EGP =Total investment costs with 250 million

4- Promotion: Promotion objectives: Create a brand loyalty & Encourage repeat and multiple purchases.A- Social Media Marketing:Our Firm will have its own web store which is connected to some popular social networking on the internet such as YouTube, Face book, twitter, tumbler, instagram, and Google+. B- Advertisement MarketingMake a contract with a media and promotion company to show our products through TV advertising, magazines, For TV Advertising.C- Special offers & Discounts: In case of cash sales or large quantities purchased a 20% discount should be to the clients - A special offer for our products should be made weakly on malls foe examples wining trips, extra gifts).

Corporate Structure

The firm will have a Divisional Structure that can be a mix between Geographic Area Structure & Product Group Structure (Matrix Structure).It can be divided according to products division basis as: chocolate product division, sugar based product division, gum division, each division can be divided into served region. Activities can be coordinated across co’s functions & division to foster resource sharing and to use the power of global brands. As another global brand of the same co., global synergies can be achieved through sharing of local resources.

This structure allows:1- Decentralizing significant power & authority to local subsidiary managers (Plant managers)

in each geographic area so each plant can uses the resources of the country or region they are in.

2- Allows the company to tailor product to regional differences & customer preferences (According to my adapted global strategy).

This recommended horizontal structure will be characterized with a wide span of control, fewer level of management (chain of command) this means that each manager will have more employees to communicate with but each employee has been trained to set a standard which allow manager to trust them to get the job with little guidance from him or her allowing workers to be more empowerment & independence, innovative & can make quick decisions.

Top executives need to communicate clearly to their employee or management teams globally oriented should be assembled to form the needed global mindset employee training of both international market knowledge & language should be provided & information system should be build up to facilitate information flow & further integration of domestic division & international divisions are necessary to form the appropriate organization structure for the implantation of a global strategy.

Human Resources Plan

Our strengths is the quality of our people, they are the most important element in our corporation, An organization’s human resource can be a key competitive advantage as technology can be copied by competitors around the world while people however are not willing to move to other companies in other countries So in order to achieve a global HR strategy we need the following:

First: Board OF Directors and Top managers Brought from Head Office in USA (Building a global mind set):

- Assembling a capable management team to fill our international positions from outside, because the corporation does not have insiders with requisite experience and management knows about ambitious global expansion.

- BOD, Top management should spent large time in Egypt understand the local consumers needs and local market trends, customs and habits of the society.

- Language obstacle should be overcome by taking language course so they can communicate with local customer and employees.

Second: Executives and Manpower: In order to reduce our cost we may depend on outsourcing regarding the direct labor force,

while other indirect labors like (Marketing, legal, Financial, Purchases) Departments will be hired directly from our company without using a recruiting agency.

Using a Fair and an effective way of recruiting and selection of corporate staff First: we need to make a poll of candidates through posting an advertisement “internal and external” and make a shortlist of qualified candidates.Second: Select Candidates who succeeded in the interviews and a series of exams like (Cognitive test, Personality test, and Psychometric test) to fill the vacant positionsThird: An orientation day should be set in order to inform new employees with their duties and rights and with history of the organization and BOD.

Set a Training need assessment (TNA) in order to identify the training program required for each job in which will enable us to train and continuously develop new and current employees, Leaning the corporate values, culture, ethics , Loyalty and targeted goals .

Instead of Focusing on how to adopt domestic consumer needs, Hershey needs to train its employees to understand the needs of the world market and focus on the commonalities of these markets.

Set compensation and motivational plans for employees such as: staff loans, medical insurance, annual salary increase based on the performance appraisal made.

Use an effective way for performance appraisal like using ( 360 degree appraisal method) as it use input from subordinates and peers , this method is considered the best way for a company which uses a competitive strategy as differentiation.

Prepare our HR Department as a Business partner: These include talent development in HR, creating corporate centers of excellence, developing the right metrics and analytics, and perhaps most important, understanding how human capital management impacts business results.

Financial Analysis

A) Financial statement Analysis

We may start our analysis by implementing DuPont formula on the historical financial statements data in order to determine what is driving a company's ROE to increase in 2004 ;return on sales which shows the operating efficiency, asset turnover that shows the asset was used in the same efficient way of 2003, the leverage factor that shows how much leverage is being used.

DuPont formula31/12/200431/12/2003ROE53.7%35.7%

(ROS)13.3%11 %Asset turn over (ATO)1.161.16

( ALEV)348.6%279.9%

First: Income statement Analysis:

1- Net Income Items : 2004 2003Sales growth 6.2% -COGS growth 5.3% -

Net Income Growth rate 29.1% -COGS/sales 60.5% 61%

Gross profit margins 39.5% 39%SG&A / sales 19.1% 19.6%EBIT/Sales 20.4% 19%

Sales: Net sales increased with 256697 $ thousand, or 6.2%, from 2003 to 2004, resulting primarily from the selling price increase, volume growth in sales of key confectionery brands reflecting the introduction of new products and population growth which indicates the successful marketing strategy implemented from the firm.

COGS: Cost of sales increased by 134805 $ thousand or 5.3%, from 2003 to 2004. The cost increasing is an appropriate percentage because of the divestitures and rationalization of certain products and lower supply chain costs, principally associated with reduced costs for raw materials, packaging, shipping and distribution which indicate the firm’s efficiency in controlling its production cost and its bragging power over their suppliers.

Gross Margin: increased in 2004 with .5% this reflected the impact of the Sale Growth and improved sales mix and, with low percent due to the increase in the Cost of sales (relatively high (5.3 %) in comparing with sales growth (6.2 %)).

Financial charges: Interest expense increased in 2004 by 4.7% than 2003, primarily as a result of an increase in outstanding debts as (short term debt) increased in 2004 by 331245 $ thousand.

Net Income: The company achieved a positive net income over the years of comparison with a growth rate in 2004 by 29.1 % supported by net sales Growth and appropriate increase in the Firms costs.

Second: Balance sheet Analysis:

2- Liquidity Ratios 2004 2003Current ratio(CA/CL) .92 1.9

Quick ratio(CA-Inventory/CL) .49 0.9

Net working capital (102941) 545759

Current Ratio: The ratio of current assets to current liabilities decreased of December 31, 2004, primarily reflecting a decrease in cash and cash equivalents, and an increase in accrued liabilities as a result of increased promotional allowances, the firm will face a problem in covering it's urgent liability easily.

Net working capital: The Firm achieved a (-) Working capital in years of comparison which reflect a problem in the firm's capital structure (Short term source finance a short term use), which provides a problem for protection for current creditors.

Working Investment / Sales: Hershey's WI/sales has increased in 2004 by 3% as a result of increase in Accrued expense and account payable items which indicates that the firm has received a better terms with its suppliers. A/R DOH, AP DOH: was stable during years of comparison which indicate that the firm maintained its Selling, purchasing and storage policy. INVENTORY DOH was improved by decreasing the number of days which reflect a policy of better inventory cycle. T. Assets turnover was stable during years of comparison which indicate that the firm maintained its assets using policy and with no great expansions and acquiring.

4-Profitability Ratios : 2004 2003ROS ( Net Profit margin) 13.3% 11%

ROE 53.7 % 35.7%ROA(Return on Investment ) 15.6 % 12.8%

Net Profit Margin: As previously discussed at the Income statement analysis the overall profitability has enhanced due to sales and Net Income Growth in 2004.ROE: increased in 2004 as a result on increase in NI while Equity has reduced. ROA: increased in 2004 that indicate that the firm was more efficient in using its assets to generate higher sales and higher NI.

3- Asset efficiency (Activity Ratios) 2004 2003Working Investment 660153 640331

WI/Sales 14.9 % 15.3 %AR turnover 10.8 Times 10 times

A/R DOH 33 days 34daysInventory Turnover 7.94 times 5.16 times

INV DOH 45.34 days 71daysAP Turnover 18.02 times 19.25 times

A/P DOH 20 days 18daysAccrued Expenses DOH 63 days 55 Days

Asset turn over 1.16 times 1.16 timesFixed assets Turnover 2.6 times 1.7 times

ROE is higher than ROA which indicates that the firm is employing financial leverage effectively.

5-Debt Ratios 2004 2003

Financial leverage (Total Debts / Equity) 248.6% 179.9%

Gearing(Total bank debts/total equity ) 95% 77%

ALEV (Assets/Equity) 348.6% 279.9%

Interest Coverage Ratio (EBIT/Interest expense) 13.55 12.5

Interest Coverage Ratio: despite the increase in firm’s short debts in 2004 the firm was able to cover its financial charges of its outstanding debts from its operating income more than in 2003. Financial Leverage: Hershey depends on External sources of finance, as (long term debts) decreased by 277897 $ thousand , Short term debts increased by 331245 $ thousand in 2004 which reflected on the Gearing ratio and the overall financial leverage , as the firm used the increase in short debts to finance its short & long term assets and the increase in the permanent level of working investment , financial structure is not adequate as (Short Term source finances a short term use).

B) Assumptions for projected Financials 2014:

First: Income statement assumptions:1. Sales: previously determined at the Marketing Strategy.2. COGS : previously determined at the Marketing strategy (represents about 60% of sales).3. Depreciation Expense: assuming a s straight line method of depreciating PP&E

(Purchased Price =200 million EGP) with zero salvage value on 20 years useful life According to the Egyptian accounting standard 5% of Plant and machinery costs (200 million /20 Years) = 10 million .

4. SG&A: Represents advertising and administrative expenses and salaries of BOD and marketing and accounting and legal team and other indirect labor force about 20% of sales.

5. Financial Expenses: Assumed that Hershey will be Granted a Long term loan of 100 Million with an annual fixed interest rate of 10% (10%*100 Million = 10 million).

6. Taxes : According Tax Law No. 91 of 2005 corporate subject will be 20% of the net income after interest.

Second: Balance sheet assumptions:Owner's Equity:

1. Legal Reserves account: According to the Egyptian accounting standards it's a 5% of the Paid up capital.

2. Retained earnings : Assuming that the firm will retain 85% of the Current year Net income.

3. Paid Up Capital: According to Industry average assumed to be 200 million.Assets:

1. Cash: Assumed to be 2% of sales according to Industry average in Egypt.2. Accounts Receivables: Assumed that the firm will be able to collect its dues from it's in

3 months, so AR Figure = (Projected sales *90/360) = 117 million which represents 25% of sales figure.

3. Inventory: Assumed that the Firm Inventory DOH will be 70 days so the Inventory figure will be (projected COGS*70/360) = 55 million Represents about 19.6% of the Firms COGS Raw material represents 30% of the Inventory , WIP represents 50%, Finished Goods Represents 20% of firms Inventory.

4. Land & Property plant and Equipment: Assumed that the Initial Investment requires 250 billion (Land =50 million, PP&E =200 billion).

Liabilities: 1. Bank Loan : Assume Hershey will be Granted a medium term loan from local banks

to finance the purchases of its investment in Egypt by the amount of 100 million EGP with an interest rate of 10% to be repaid in 5 years to posted in the firms B/S as following :- Current portion to be due within 1 year = 100/5=20 Million EGP.- Long term will be due in the following 4 years = 80 Million EGP.

2. Accounts Payable: Assumed that suppliers will grant Hershey 2 months to pay them, so AP Figure = (Projected COGS *60/360) = 47 million which represents which represents 16.7% of Cogs.

3. Over draft account: the New money need for Hershey to finance its Working capital will be (Projected Assets – Known liability +OE) = 5 Million.

Recommendations and Conclusion

- Hershey’s new global expansion thinking is the new trend, towards growing their business and extending their reach as far as possible.

- Egypt is a promising market to enter with high potentials and some threats.- Additionally venturing into smaller niche market businesses will allow Hershey’s to reach

consumers of all areas, tastes, and backgrounds. - Hershey’s can take the confectionary market by storm and take an even bigger chunk of the

market share. - In the next years, Hershey’s will remain a prominent industry within the US, and potentially

grow into a global status. Unless the world progressively becomes allergic to chocolate or candy, the future only holds positivity and growth for this confectionary leader.-Hershey can take an active interest in the communities of their workers and vendors.

- Global strategy adapted is the new trend today for customizing for Egypt consumer preferences & level of income and exporting to Middle East.

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