Pre-seen analysis P plc Note: The enclosed document in no way indicates what is likely to be examined within the un-seen information on exam day. Contents Page 2 - E3 Tips and Guidance Page 5 - F3 Tips and Guidance Page 8 - P3 Tips and Guidance Page 10 – Industry Information Exam Timetable May 2014 Tuesday Wednesday Thursday Exam sitting 20 May 21 May 22 May Morning session E3 Enterprise P3 Performance F3 Financial 9:10am to 12:30pm Strategy Strategy Strategy 1 | P a g e E3 Tips and guidance Guidance and tips for Section A The two pages of un-seen information on exam day can produce many ‘parallel universes’ in the context of a scenario setting, so it is important to keep an open mind. The two pages of un-seen information on exam day will often divide itself into different sections of scenario information, which will appear in the same order that the Section A requirements (a), (b), (c) etc. appear. This makes it easier to focus on the different the parts of scenario information when applying yourself to each requirement. Clearly the basic essentials of good time keeping, answer planning and more importantly APPLYING your discussion RELEVANTLY to the un-seen information and addressing each requirement FULLY will be essential if you are looking to pass E3. Study your E3 syllabus well and know your pre-seen information on exam day because you may have to refer to it. P plc operates B2C e.g. retail outlets and B2B e.g. direct sales units. It started as a manufacturing company and has since become listed and diversified into distribution and retail. It is a UK listed company, has acquired companies in Europe and the USA and has divested all of its manufacturing business units. The pre-seen information gives corporate values on page 2 and these values are qualitative and include ethical and social responsibility aims. On page 4 of the pre- seen there are strategic objectives aimed at improving shareholder value which are economic rather than social. The CSR aims of P plc are also included on page 5 of the pre-seen. A possible scenario on exam day could include the assessment of the suitability of a strategic option with any of these aims or objectives. If the values, aims or objectives of P plc are to be judged against a strategic option, remember to consider fully all of them that is required, many candidates are not picking up full marks due to aims or objectives viewed as ‘neutral’ and so say nothing and so are awarded no credit. The pre-seen information also mentions a centralised treasury function, another scenario on exam day could be to evaluate shared service centres or the divisional structure of this group, there seems to be synergy in merging at least some of the operations of the plumbing and buildings divisions to reduce cost and duplication e.g. logistics, transportation, distribution networks, distribution warehouses and possibly direct sales or retail units. Page 4 of the pre-seen also mentions the inefficiency of logistics within the supply chain e.g. some products P plc sources from Africa and Asia, cross the world to P plc warehouses and then back again to Africa and Asia. The T4 Case Study exam (May 2010, page 21-22 of its pre-seen) has a good scenario with an NPV to practice 2 | P a g e for a strategic option to open a new distribution centre, this can be downloaded from the CIMA website or please do ask for a copy. P plc divisions do distribute to other parts of the world e.g. Africa and Asia, so it could be a good scenario to get some practice. E3 May 2011 (question SA 11 in the Acorn exam practice kit) also includes relocation of a UK Division as a strategic option to evaluate. A P6 May 2007 exam question (C16 in the Acorn exam practice kit) is also a good question to examine a strategic option for a pharmaceutical manufacturing company considering a proposal to outsource its transportation function. Other tips for section A Normally up to 10% maximum for calculations within Section A Shareholder value analysis. Evaluation of the suitability of P’s existing organisational structure. Evaluation of an acquisition for market development and identification of issues to consider, in some cases for P, newly acquired businesses have underperformed. Evaluation of opening a new distribution centre in another part of the world as a strategic option based on quantitative and qualitative criteria. Evaluation of ‘virtual warehousing’ as a strategic option. Customer or product profitability analysis for either the plumbing or building division e.g. products, customer types or retail outlet/direct sales units as sales channels. Strategic supply chain management. Benchmarking internal performance e.g. in different countries, advice on improving operating efficiency based on quantitative and qualitative criteria. Strategic options generation e.g. using Ansoff’s product/market matrix. Business unit performance and appraisal, including transfer pricing, reward systems and incentives. CSF/performance indicators based on the industry for plumbing or building supplies. The CIMA code of ethics, business ethics and CSR related scenarios, perhaps ways of improving responsible business practice Relationship marketing e.g. direct sales units or retail outlets. Tips for section B Each section B question normally examines at least one model or theory. Very rarely are calculations tested within section B. Change management and theories. IT/IS strategy. Cultural analysis and advice. Stakeholder management or Mendelow’s matrix. Ansoff’s strategic options. Porters Generic Strategies. BCG Box. CSF/performance indicators 3 | P a g e Balanced Scorecard. Evaluation of performance systems recommendation of controls, changes or improvements. Evaluation of strategic options and recommendations. Visioning tools such as scenario planning or long range planning tools such as gap analysis. E3 syllabus areas which still have not been tested Real Options as a tool for strategic analysis. Note: Complex numerical questions will not be set. Game theoretic approaches to strategic planning and decision-making. Note: Complex numerical questions will not be set. The implementation of lean systems across an organisation. 4 | P a g e F3 Tips and guidance Chairman’s statement on P plc’s strategic objectives P plc’s Chairman has declared three strategic objectives for the company which all combine with the aim of improving shareholder value. These three strategic objectives of P plc are: . To be the market leader in the regions of the world in which it operates; . To deleverage the company by disposing of business units or individual retail outlets which do not contribute sufficiently to the aim of P plc becoming market leader or arefailing to meet minimum performance targets; . To continuously strive to improve its products and customer services. Corporate Responsibility Aims P plc aims to provide excellent customer service across its two divisions. This excellence in customer service is underpinned by its: . provision of high levels of staff training and development, with strong concentration on safety management; . adherence to the highest ethical standards both internally and with respect to supplier relationships; . concern to cause the least environmental damage possible within its operations in terms of emissions, waste management and recycling activities by employing environmental performance management methods; . promotion of product integrity through selling only safe and reliable products which are of the required standard of quality and partnering with key suppliers. Strategic developments P plc aims to increase its market share by making repeat sales through its external direct sales units and retail outlets to existing customers and attracting new customers away from competitors. It places customer service as its key critical success factor. The Board is constantly seeking improvements in the company’s logistics particularly in sourcing products and their delivery to its external direct sales units and retail outlets wherever they are in the world. It is actively considering acquiring logistic resources in parts of the world where it does not own warehousing and distribution facilities at present and also pursuing the concept of virtual warehousing by which its external direct sales units and retail outlets will still place their orders with P plc but will obtain their supplies directly from the manufacturer. Other areas of strategic development concern reviewing the life expectancy of its products so as to give greater value for money to final customers and benchmarking its performance in different countries in order to improve operating efficiency. 5 | P a g e Other key aspects . 90% of the shareholders are institutional investors, so any course of action by P plc will impact these shareholders. Maintaining good relationships with these investors is imperative. Comparisons of the two divisions: Total Plumbing & Heating Building materials £m £m % £m % Revenue 13877 7040 51% 6837 49% Operating profit 447 234 52% 213 48% NCA Intangible assets 1748 781 45% 967 55% PPE 1326 597 45% 729 55% Trade & other 135 65 48% 70 52% CA Inventory 1784 930 52% 854 48% Trade & other 2127 1075 51% 1052 49% . The financial statements show bank loans of £1,000 million and short term borrowings of £202 million. The refinancing of these will require consideration. F3 guidance There is a strong hint of divestment with the strategic objectives as any business units or retail outlets will be disposed if they don’t meet their targets. There are also suggestions of acquiring logistic resources in Asia and Africa, so cost benefit analysis of this will need to be undertaken (investment appraisal) 6 | P a g e F3 May 201 & September 2014 exam paper predictions for P plc Numerical aspects . Business valuation. The main methods of valuation would be required (net assets, dividend valuation model, earnings based, discounted cash flows).