复旦大学emba“子遥杯”商业精英挑战赛商业案例(GBCpapy)

Board Meeting - Day 1

There

are

intense

discussions

on

whether

or

not

to

acquire

AW

Superstores

(AW),

a

newly

established chain of just 2 years, with 17 small convenient stores located offshore in Hong Kong

and 5 other stores operated in Shenzhen, China.

Some of the directors are not pleased with the

performance

of

AW

in

particular

profitability.

There

are

other

reasons

as

well

such

as

inconsistency

of

corporate

style

and

culture

between

Papy

and

AW.

However,

the

major

concern is having cigarette and alcohol

?

on sale in AW.

Cigarette and alcohol are not the major

revenue items in AW though these items are believed to give significant complement sales effect

on other regular food items and groceries.

Lucas:

If AW is conflicting with our corporate goals and objectives, we may as well renounce the

acquisition

of

such.

This

is

a

painful

decision,

as

AW

not

only

establishes

its

presence

in

the

lucrative Hong Kong market, but also in the fastest growing

China market.

Since Papy doesn’t

have any overseas establishment, and that the growth potential in Europe is limited at present,

the acquisition of AW would give Papy an opportunity to expand overseas in order to diversify

risk and to sustain growth.

I am quite anxious to see what the market may react once Papy has

decided to acquire AW Superstores.

Abdul:

The attached financial statements are the drafted financial statement of AW for the year

ended 31 December, 2010 which I received from the Operation Director of AW.

I hope Karen

could

help

to

provide

some

indications

as

to

what

valuation

is

appropriate

for

board

consideration.

I expect a five years planning horizon would be appropriate for any investment

evaluation.

Karen:

The future cash flows of AW Superstores is quite difficult to predict, and that we have to

be cautious with our assumptions.

On the safe side, however, we can use Papy as a proxy for

AW’s

financial projection.

If cigarettes and alcohol were taken away from the shelves, I expect

revenue

will

be

dropped

by

10%.

However,

we

can

consider

health

food

as

replacement.

Since having health food and supplements on sale in the convenient stores is very unique in Hong

Kong

and

in

China

market,

who

knows

if

this

could

be

a

knockout.

All

in

all,

any

financial

predictions would consider all leading factors such as corporate strategies, economic and market

conditions.

Abdul:

I

’

d

like

to

remind

all

our

board

members

that

the

current

cash

flow

of

Papy

unfortunately is just barely enough to disburse our existing obligations.

Any new acquisitions

will require additional financings.

I’

ve already arranged a mezzanine loan with HY Bank a facility

of

?

100

million.

Interest

rate

is

10%

payable

in

5

years.

This

particular

loan

will

be

used

to

finance all future projects, and any further borrowings may jeopardize our gearing levels resulting

a negative impact on our company value and share price.

?

(Note:

Smoking and drinking are considered to be hazardous to health)

Board Meeting

–

Day 2

In

the

board

meeting

ended

just

last

month,

Papy’s

major

shareholders

have

indicated

the

growing demand on health and organic food and the possibility of including this food category in

Papy

’

s stores.

This is consistent with Papy

’

s CSR

’

s responsibilities on community, healthy eating,

and responsible trading.

Lucas:

In addition to our small convenient stores, I propose to open 50 similar stores in 5 years

across Europe selling only nutritious and health items such as vitamins and mineral supplements,

natural and health food, and organic groceries such as organic toothpastes, detergents etc.

My

preliminary target is to introduce 5 stores in the first year, and at least 10 the following year and

so on, depending on market reaction.

Since the demand of organic and nutrient food is not as

much

as

the

regular

food,

we

have

to

stock

products

with

longer

shelf

life

and

in

different

varieties.

Karen:

Agreed.

Fortunately the profit margin of health food is at least 10% higher than that of

the regular food.

Below is the estimated cash flow projection of this new health chain:

?

million

Yr 1

Yr 2

Yr 3

Yr 4

Yr 5

Cash in:

25

75

130

184

275

Cash out:

23

69

119

167

249

Net cash flow:

2

6

11

17

26

No of stores

5

15

25

35

50

First year budget:

One-off initial capital expenditure:

?

5 million

One off pre-operating administration expenses:

?

1 million

Simona:

Since organic food needs personal selling and product knowledge to facilitate sales, I

don't

think

Papy

has

the

proper

personnel

and

the

know-how

to

operate

in

this

new

area

of

business.

We need to recruit from the outside, and together with proper training, I think it will

take at least one year to reach

Karen’s first year target.

Karen:

Papy

can

acquire existing

stores

as

a

start,

and

develop

the

reputation

from

there.

I

have

identified

a

chain

stores

(a

total

of

10

stores)

located

in

downtown

area,

known

as

the

Health Castle.

The total staff size is around 60, with an estimated total turnover of

?

60 million,

and

an

estimated

cash

profit

of

?

5

million.

This

company

has

already

established

itself

a

reputable and responsible health store.

This will no doubt save us a lot of effort in looking for

suppliers,

identifying

consumer

behavior

and

conducting

personnel

training.

I

haven

’

t

yet

contacted

the

owner,

though

I

expect

successful

acquisition

will

require

Papy

to

pay

a

considerable premium.

Board Meeting

–

Day 3

The board is currently tweaking its strategy in UK to take account of changing industry conditions.

The new efforts involve loosening its ownership structure to expand the number of stores and

renovating current stores to provide a better customer experience.

Lucas:

To

foster

customer

loyalty,

Papy

will

be

renovating

existing

stores

and

remodeling

its

traditional red-and-grey decor into a more relaxed, environmental and stylish green-and- brown

superstore

design.

By

creating

a

better

shopping

environment,

I

believe

customers

will

visit

more often, and not just for the replenishing of daily necessities.

The renovation will help Papy

“stay

s

one step ahead of the game” and be “different from other supermarkets in the UK”

.

Rafael:

Renovation is costly.

I have two renovation options for each supermarket:

1)

Close

the

supermarket

completely

for

two

weeks

during

the

innovation

period.

Following

the

re-opening

of

the

supermarket,

I

’

d

expect

that

there

would

be

an

average

loss

of

10%

of

revenue

for

the

next

2

months

as

customers

will

turn

to

other supermarkets for their goods.

2)

Continue

to

open

the

supermarket

during

the

renovation

period

but

with

a

reduced amount of floor area.

The useable floor area would be reduced to 80%

of

the

original

area,

and

a

5%

drop

in

sales

is

anticipated.

After

4

weeks,

the

supermarket would be closed for one week to move around the goods to the newly

decorated

area.

However,

sales

will

resume

soon

after

the

renovation

work

is

completed.

I

estimate

the

impact

on

each

of

the

small

convenient

store

is

just

one-third

of

what is mentioned concerning the supermarket.

Karen:

This new design is essential for Papy to distinguish ourselves with our competitors.

I

estimated a budget of

?

20 million is necessary to complete the changeover.

With at least half of

the

expenditure

will

be

design

cost,

cater

to

the

special

needs

of

each

supermarket

and

convenience store, and the rest will be productions and fittings.

I expect Papy will take up this

design for at least 10 years.

Lucas:

Since our last board meeting, we have to decide whether to consider franchise some of

our convenience stores to expand our market share.

Our target franchise number is 10 per year,

expanding

to

around

50

within

5

years.

This

could

bring

Papy

considerable

revenue,

and

we

need a detail plan on issues such as coordination and training etc.

Arif:

I have already discussed with some of our store managers and they are very interested in

joining the franchise.

If they agree to pay a fee of

?

260,000 for the first year and

?

28,000 per

annum for the remaining 4 years of the franchise

’

s life, Papy will undertake to provide product