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GLOBAL BUSINESS CHALLENGE TEAM EVOLVE FROM NEPAL Institute of Professional Accountancy and Management Angel Sharma Roshan Raj Mehta Sneha Amatya Sophia Pradhan

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Merbatty case from Team Evolve Nepal

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Page 1: Team Evolve

GLOBAL BUSINESS CHALLENGE

TEAM EVOLVE FROM NEPALInstitute of Professional Accountancy and Management

Angel Sharma Roshan Raj MehtaSneha AmatyaSophia Pradhan

Page 2: Team Evolve

Introduction to the Case

Luxury boat industry is growing with wealthy customer base in Europe and USA.

New markets in Australia and some parts of Asia

Merbatty is a northern European company.

It specializes in developing luxury boats and was formed 33 years ago.

Gained sales in other countries by using local sales agents.

Listed on European Stock Exchange in 2012 with Alberto Blanc as Chairman.

Page 3: Team Evolve

Alberto Blanc Chairman

6 Non Executive Directors

Henry Gaston CEO

Executive Directors

Stefan Gil Sales

Director

Andreas Acosta Finance Director

Jesper Blanc Marketing Director

Tobias HoullierOperations

Director

Marie Lopp HR Director

Paul Lavie Procurement

Director

Bernie Ritzol Global Market Development

Director

Alain MinaTechnical

Director Systems and IT

Lukas DianTechnical

Director Design

ORGANIZATIONAL HIERARCHY

Page 4: Team Evolve

• 78% 9%

No. of boats sold Sales Revenue

Merbatty’s share in the industry (2012)

Luxury Boat Market in 2012

Merbatty Others

The Luxury Boat Industry

Page 5: Team Evolve

WHAT SO-WHAT ANALYSISWHAT SO-WHAT

Customers in USA are paying in US dollars.

Fluctuations in Euros against dollars

Alberto Blanc and his previous role until 2011 Poor Governance (Cadbury Report, 1992).

Acquisition by executive directors during flotation

Increase in share prices

Proposal by Jesper Blanc

Recruitment of fresh graduates

Alain Mina and issues at the Director Level

Possible window dressing.

Increase in confidence of stakeholders.

Lack of marketing expertise / Favoritism issue

Fresh graduates could bring in new ideas to revolutionize the business

NEW HRM THEORY

Page 6: Team Evolve
Page 7: Team Evolve

Prioritization of Key Issues

Late delivery of Hull from TopCrest resulting in potential reputational damage as well as unsatisfied customers.

Conflict of interest with JKL’s involvement in management board.

Focus on quality especially with the new Suranian supplier. Loss of quality will mean loss in future sales.

Appointing sales agents could mean reduced control. The quicker the company looks to appoint its own sales staff, the better.

Page 8: Team Evolve

Brand Reputation

Customer Dissatisfaction

Bargaining Power of suppliers

Alternative Solutions

Accept Topcrest offer

Rescheduling tasks for efficiency Replacement hull order

Continue working with Topcrest

Negotiate for overtime wages with Topcrest

Sign a Memorandum with Topcrest asking them to stick to future times

See if rescheduling can be done .

Inform customer and send an apology letter also informing them about possible compensations.

Issue 1: Late delivery of a hull from Topcrest

Impact of the problem

Alternatives

Recommendations

Page 9: Team Evolve

Conflict of interest

Loss of control

Bargaining Power of JKL

Protecting key ideas

Tight management control

Negotiating to create win-win situation

Copyright Ideas and Intellectual Properties

Strong IT systems with access controls

Negotiate with JKL to remove Simone Lellet from the executive board

Issue 2: JKL as the second largest share holder

Impact of the problem

Alternatives

Recommendations

Page 10: Team Evolve

Impact of the problem

Quality design and flexibility

Design, Design and Design

Reject Cooper Designs for Surania.

Working with Seikh could be beneficial.

10K advantage if Arabian Interiors is chosen.

Meeting needs and demands of the customers is the perfect marketing concept.

Cooper Designs should not be selected and should be informed in a polite way.

Issue 3: Suranian Supplier

Impact of the problem

Recommendations

Page 11: Team Evolve

Confidentiality

Commission driven

Selling strategies cannot be implemented through sales agents.

Sales agents can be used to sell boats that are highly priced.

It is easier to gives sales staffs targets rather than sales agents.

Risky to use sales staffs but commission v wages almost equal themselves.

It is recommended that Merbatty use sales agents for higher priced boats and sales staffs for lower and mid range boats.

Issue 4: Use of sales agents

Impact of the problem

Recommendations

Page 12: Team Evolve

Evaluating Jesper’s Proposal

Jesper suggests that Merbatty build and race a speedboat in the global speedboat competition.

The benefits of organizing the competition: Extra Sales from brand marketing Potential racing boat builder

Merbatty is not a family business so Alberto has to make sure his decision is not biased.

Financial Risks: 12m in design and development 8m in travel, accommodation and direct engineer costs

Deviation from the core activity is not regarded good.

Proposal made by Jesper is extremely risky and it is recommended that Merbatty do not continue with Jesper’s proposal.

Alberto keen about sales to make for breakeven over 2 years.

Page 13: Team Evolve

Racing Boat BEP

Contribution per boat €1.8m

Fixed Costs €28m

BEP Sales (per boat) = 15.6

Page 14: Team Evolve

Ethics

Work place safety should be top priority for any employer.

Companies are required to have Health & Safety procedures.

Merbatty has failed by allowing Paulo to come in to work.

Jesper should have reported it but let it go.

Disciplinary proceedings against Paulo is highly recommended.

There should be a balance between EDs and NEDs. Majority of the members should be NEDs.

Principle of Objectivity

Jesper Blanc and Alberto Blanc issues

Accident at Work Balance in board

Objectivity

Page 15: Team Evolve

FINANCIAL ANALYSIS

PROFITABILITY

LIQUIDITY RISK

INVESTORS RATIO

Page 16: Team Evolve

Return on Capital Employed (ROCE)= * 100%

PROFITABILITY:

ROCE has gone down because equity and non-current liabilities have increased in 2012.

Merbatty has taken a bank loan of 200m at interest of 10%.

It has failed to earn the return on its capital employed.

FINANCIAL ANALYSIS

Year 2012:

* 100 = 9.2%

Year 2011:

* 100 = 21.2%

Page 17: Team Evolve

O * 100%

PROFITABILITY :

Operating profit margin has slightly increased

It shows that operating costs are under control.

Which means that there is increase in revenue.

BACK

FINANCIAL ANALYSIS

Year 2012:

* 100 = 15.14%

Year 2011:

* 100 = 14.6%

Page 18: Team Evolve

LIQUIDITY :

Increase in debt collection period (receivable days).

Decrease in payable period (payable days).

Poor management of working capital.

De Loff(2003) and his findings.BACK

FINANCIAL ANALYSIS

Cash operating 𝑐𝑦𝑐𝑙𝑒 2012 2011 Inventory Days 141 121Receivable Days 67 62

Payable Days (87) (108) ________ ________

121 75

Page 19: Team Evolve

Gearing Ratio= * 100%

RISK :

Gearing ratio looks at risk exposure by comparing debt to equity.

Gearing ratio has halved from 2011 to 2012.

Company has minimized its risk exposure.

BACK

FINANCIAL ANALYSIS

Year 2012:

* 100 = 33.3%

Year 2011:

* 100 = 66%

Page 20: Team Evolve

Price earning ratio (PE ratio) =

INVESTORS RATIO :

Year 2011 figures are not given.

Market sector average at 30 June 2013 is 15.

From 2.3 to 15 is a big jump.

A higher PE ratio shows that investors are expecting a higher growth.

FINANCIAL ANALYSIS

Year 2012:

= 2.3

Page 21: Team Evolve

CONCLUSION

All four issues should be addressed by Merbatty as soon as possible.

Jespers proposal should be evaluated with a proper succession planning should Jesper leave.

Ethical issues should be addressed to establish Merbatty as an ethical organization.

Profitability and liquidity have to be maintained.

Merbatty should continue to minimize its risks.

Investor’s ratio has to be improved.

Page 22: Team Evolve

REFERENCES

DELOOF, M. (2003). Does working capital management affect profitability of Belgian firms? Journal of Business Finance & Accounting, 30,pp. 573-588.

KOTLER, P. R., ARMSTRONG, G., CUNNINGHAM, P. H. AND TRIFTS, V. (2013). Principles of Marketing, Pearson Education Canada.

SHORT, H. (1996). Non Executive Directors, Corporate Governance and the Cadbury ‐Report: A Review of the Issues and Evidence. Corporate Governance: An International Review, 4, pp. 123-131.

SMART, V., BARMAN, T. AND GUNASEKERA, N. (2010). Incorporating Ethics into Strategy: Developing sustainable business models, CIMA.

Page 23: Team Evolve

THANK YOU FOR LISTENING !!!