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FM – Nov 2014 – L3 – SB – Q2 – Corporate Restructuring

Analyze divestment strategies for Chelsy Plc’s divisions, compute finance needs, and assess buyout and sale implications.

Chelsy Plc has two manufacturing divisions, Bolts and Nuts. The Bolts division is profitable whereas the Nuts division is not. The company’s share price has consequently declined to 50 kobo per share from a price of N2.83 per share three years ago.

The board of directors is considering two proposals:
i. To cease trading and close down the company.
ii. To close the Nuts division and continue the Bolts division through a leveraged management buyout. The new company will continue to manufacture bolts only but will require an additional investment of N275 million to grow the Bolts division’s after-tax cash flows by 3.5 percent in perpetuity. The proceeds from the sale of the Nuts division will be applied to pay the division’s outstanding liabilities. The finance raised from the management buyout will be applied in paying any remaining liabilities, fund additional investment, and purchase the current equity shares at a premium of 20 percent.

The Nuts division is twice the size of the Bolts division in terms of the assets attributable to it.

Extracts from the most recent financial statements of Chelsy Plc are as follows:

Statement of Financial Position as at 31 December 2013

N’000
Non-current assets 605,000
Current assets 1,210,000
Share capital (40 kobo per share) 220,000
Reserves 55,000
Liabilities (non-current and current) 1,540,000

Comprehensive Income Statement for the year ended 31 December 2013

Division Revenue Costs (prior to depreciation, interest, and tax)
Bolts division 935,000 (660,000)
Nuts division 1,870,000 (2,035,000)
Depreciation, interest, and tax (combined): (187,000)
Loss: (77,000)

If the company’s assets are sold, the estimated realizable values are as follows:

N’000
Non-current assets 550,000
Current assets 605,000

Additional Information:

  1. Redundancy and other costs will be approximately N297 million if the whole company is closed and pro rata for individual divisions that are closed. These costs have priority for payment before any other liabilities in case of closure. The taxation effects relating to this may be ignored.
  2. Company income tax on profits is 30%, and it can be assumed that tax is payable in the year it is liable.
  3. Annual depreciation on non-current assets is 10%, and this is the amount of investment needed to maintain the current level of activity.
  4. The new company’s cost of capital is expected to be 11%.

Required:

(a) Discuss, briefly, the possible benefits of divesting Bolts division through a management buyout. (4 Marks)
(b) Estimate the return the creditors and the shareholders will receive in the event that Chelsy Plc is closed and all its assets sold. (3 Marks)
(c) Estimate the additional amount of finance needed and the value of the new company if only the assets of Nuts division are sold and the Bolts division is divested through a management buyout. (8 Marks)
(d) Discuss the issues that should be taken into consideration in relation to:
i. Seeking potential buyers and negotiating the price
ii. Due diligence
(Assume that the Nuts division is to be sold as a going concern). (5 Marks)

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CR – Nov 2023 – L3 – SC – Q6 – Integrated Reporting

Discuss the limitations of financial reporting and the role of integrated reporting in enhancing corporate disclosures, as well as the main aims of IIRC.

There is general acceptance that using traditional financial reporting as the sole measure of a company’s performance and financial standing is a flawed approach. However, corporate sustainability reports help to fill this gap but are not often linked to a company’s strategy or financial performance and provide insufficient information on value creation.

Integrated reporting is a new approach, which is a concise communication about how an organization’s strategy, governance, performance, and prospects, in the context of its external environment, leads to the creation of value in the short, medium, and long term.

Required:
a. In the context of the above scenario, critically discuss the limitations of financial reporting and the extent to which integrated reporting might improve the usefulness of annual reports of companies.
(11 Marks)

b. Identify the FOUR major aims of the International Integrated Reporting Council (IIRC) in the evolution of corporate reporting.
(4 Marks)
(Total 15 Marks)

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MGE – Nov 2014 – L2 – Q2 – Strategic Planning Process

Elements of a corporate mission statement to reflect values, customer focus, and ethical operations.

In January 2014, Mr. Uzodike Okoh, the Managing Director of DEF Oil Mills Limited, constituted a Strategic Planning Committee to coordinate the development of a five-year strategic plan for the company. This is the first time a formal strategic plan is being attempted in the company.

After several meetings of the Strategic Planning Committee, Mr. Ibrahim Edoro, the Chairman of the Strategic Planning Committee, presented what he described as a road map to actualize the objectives of the company. Several sub-committees were constituted to work on different aspects of the strategic plan.

Mrs. Edwards is the Chairperson of the sub-committee assigned to articulate and draw up the mission statement of the company. The Chairman of the Strategic Planning Committee took particular interest in the work of this sub-committee because, according to him, an appropriate mission statement would set the tone of the strategic plan, galvanise energies of the entire workforce, and set a clear direction for the company.

At the first meeting of the mission statement’s sub-committee, Mrs. Edwards distributed working papers, which included the history of the company. Speeches delivered by the pioneer Managing Director on different occasions and mission statements of similar companies were also provided.

The next meeting of the sub-committee was a brainstorming session in which participants were asked to identify the key elements that should be incorporated into the mission statement of the company.

Required:

As a member of the sub-committee on mission statement, identify and explain any FIVE elements which may be incorporated into the mission statement of the company.
(20 Marks)

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CSME – May 2024 – L2 – SC – Q7 – Risk Management and Corporate Strategy

Discuss the inherent risks that affect the profitability of an insurance company operating internationally.

At an in-house seminar for the top management staff of your organization, you have been appointed to present a report on the significant risks that have negatively affected the profitability of the two lines of business as presented in the Annual Report and Accounts of an insurance company with branches both within and outside Nigeria.

Required:

Present a report to the Management as a consultant, detailing the ‘risks inherent in an insurance company’.

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CSME – Nov 2019 – L2 – Q5a – Risk Management and Corporate Strategy

Outlines a presentation on the functions and determinants of the efficiency of a risk manager.

(a) You are preparing for a job interview as a risk manager. This requires you to make a ten-minute presentation on the functions and determinants of the efficiency of a risk manager.

Required:
Present an outline of your 10-minute presentation. (10 Marks)

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MGE – May 2018 – L2 – Q1b – Market and Product Development Strategies

Distinguishing market and product development strategies using Agaba Limited as a case study.

Ansoff argued that when a firm is planning its growth strategies, there should be a link between its current products and markets and its future products and markets. The management of Agaba Limited, an Aba-based company, has anchored its strategies for product-market development on Ansoff’s growth vector matrix.

Required:
Distinguish between market development strategy and product development strategy adopted by Agaba Limited. (6 Marks)

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SCS – MAR 2024 – L3 – Q1a – Strategy, stakeholders, and mission

Analyze the three levels of strategy being pursued by Prestige Designers Ltd.

Johnson, Scholes, and Whittington identified three levels of strategy, namely corporate strategy, business strategy, and functional strategy. These strategies should be consistent with each other.

Required: In the light of the statements above, analyze the three levels of strategy being pursued by Prestige Designers Ltd. (10 marks)

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SCS – July 2023 – L3 – Q2b – Strategy Implementation

Explain three broad corporate parenting styles described by Goold and Campbell that SavvyTech might adopt.

SavvyTech plc’s management team is debating the corporate parenting strategy that should be adopted. Corporate parenting refers to the relationship between the Head Office and the strategic business unit staff in Utopia.

Required:
As a lead consultant, explain to SavvyTech plc management team THREE (3) broad parenting styles that might be adopted as described by Goold and Campbell (1991).

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SCS – March 2023 – L3 – Q5 – Strategy implementation

Uses Fitzgerald and Moon’s performance measurement dimensions to link LCH’s performance assessment to corporate strategy.

Fitzgerald and Moon (1996) provided a framework for analysing performance management systems in service industries like a hospital. They suggested that a performance management system in a service organisation can be analysed as a combination of three building blocks, namely:
i) Dimensions
ii) Standards
iii) Rewards.

Required:
Using Dimensions as a tool for performance measurement, discuss how LCH could link performance assessment to corporate strategy.
(10 marks)

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CSME – Mar/Jul 2020 – L2 – Q1 – CSME – Mar/July 2020 – L2 – Q1 – Air Spirit Strategic Analysis Using Bowman’s Strategic Clock and Porter’s Five Forces

Analyze Air Spirit Limited's competitive strategy using Bowman’s Strategic Clock and Porter’s Five Forces model.

Air Spirit Limited, a leading aviation company in Nigeria, is involved in passenger and cargo airline business. The company was established in 1980 and since inception, it has maintained leadership in the passenger airline business in Nigeria. The company has been able to leverage on experience, leading to efficiency in its operations which competitors have not been able to replicate. Hence, it has assumed cost leadership position in the industry. The firm currently pursues a low-price strategy and offers the lowest fare for all categories of flights (economy, business, and first class) in the market and its cargo services. Service quality of Air Spirit is adjudged by the flying public as second to none in terms of quality, efficiency, and safety with customer benefits rated above those of its rivals.

As a growth strategy, the company plans to expand its product offerings to include chartered flights. Target market includes politicians, businessmen, and high-net-worth individuals. It is estimated that the chartered flights market is growing at 10% annually. Also, the chartered flights market is currently serviced by only one company; Royal Airlines Limited, which covers only the Lagos-Abuja route. Setup cost is high, thereby providing a barrier for new entrants. The company hopes to leverage on existing competencies in the passenger and cargo market to build the best chartered flights company in the country within the next three years, offering excellent services and benefits that would be difficult to replicate by competitors. It has built a strong relationship with aircraft suppliers and maintenance contractors. This will facilitate easy access to needed inputs. It hopes to commence operations across several routes, most of which are not currently serviced by its competitor. The company believes that the capabilities obtained from the passenger and cargo airline business will enable it to offer the lowest fare in the chartered flights industry.

Required:
a. From the scenario above, use Bowman’s Strategic Clock to analyse the effectiveness of the current strategy of Air Spirit Limited in the passenger airline business. (22 Marks)
b. Using Porter’s Five Forces model, advise the management of Air Spirit Limited on the level of competition in the chartered flights market. (18 Marks)

(Total 40 Marks)

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FM – Nov 2014 – L3 – SB – Q2 – Corporate Restructuring

Analyze divestment strategies for Chelsy Plc’s divisions, compute finance needs, and assess buyout and sale implications.

Chelsy Plc has two manufacturing divisions, Bolts and Nuts. The Bolts division is profitable whereas the Nuts division is not. The company’s share price has consequently declined to 50 kobo per share from a price of N2.83 per share three years ago.

The board of directors is considering two proposals:
i. To cease trading and close down the company.
ii. To close the Nuts division and continue the Bolts division through a leveraged management buyout. The new company will continue to manufacture bolts only but will require an additional investment of N275 million to grow the Bolts division’s after-tax cash flows by 3.5 percent in perpetuity. The proceeds from the sale of the Nuts division will be applied to pay the division’s outstanding liabilities. The finance raised from the management buyout will be applied in paying any remaining liabilities, fund additional investment, and purchase the current equity shares at a premium of 20 percent.

The Nuts division is twice the size of the Bolts division in terms of the assets attributable to it.

Extracts from the most recent financial statements of Chelsy Plc are as follows:

Statement of Financial Position as at 31 December 2013

N’000
Non-current assets 605,000
Current assets 1,210,000
Share capital (40 kobo per share) 220,000
Reserves 55,000
Liabilities (non-current and current) 1,540,000

Comprehensive Income Statement for the year ended 31 December 2013

Division Revenue Costs (prior to depreciation, interest, and tax)
Bolts division 935,000 (660,000)
Nuts division 1,870,000 (2,035,000)
Depreciation, interest, and tax (combined): (187,000)
Loss: (77,000)

If the company’s assets are sold, the estimated realizable values are as follows:

N’000
Non-current assets 550,000
Current assets 605,000

Additional Information:

  1. Redundancy and other costs will be approximately N297 million if the whole company is closed and pro rata for individual divisions that are closed. These costs have priority for payment before any other liabilities in case of closure. The taxation effects relating to this may be ignored.
  2. Company income tax on profits is 30%, and it can be assumed that tax is payable in the year it is liable.
  3. Annual depreciation on non-current assets is 10%, and this is the amount of investment needed to maintain the current level of activity.
  4. The new company’s cost of capital is expected to be 11%.

Required:

(a) Discuss, briefly, the possible benefits of divesting Bolts division through a management buyout. (4 Marks)
(b) Estimate the return the creditors and the shareholders will receive in the event that Chelsy Plc is closed and all its assets sold. (3 Marks)
(c) Estimate the additional amount of finance needed and the value of the new company if only the assets of Nuts division are sold and the Bolts division is divested through a management buyout. (8 Marks)
(d) Discuss the issues that should be taken into consideration in relation to:
i. Seeking potential buyers and negotiating the price
ii. Due diligence
(Assume that the Nuts division is to be sold as a going concern). (5 Marks)

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CR – Nov 2023 – L3 – SC – Q6 – Integrated Reporting

Discuss the limitations of financial reporting and the role of integrated reporting in enhancing corporate disclosures, as well as the main aims of IIRC.

There is general acceptance that using traditional financial reporting as the sole measure of a company’s performance and financial standing is a flawed approach. However, corporate sustainability reports help to fill this gap but are not often linked to a company’s strategy or financial performance and provide insufficient information on value creation.

Integrated reporting is a new approach, which is a concise communication about how an organization’s strategy, governance, performance, and prospects, in the context of its external environment, leads to the creation of value in the short, medium, and long term.

Required:
a. In the context of the above scenario, critically discuss the limitations of financial reporting and the extent to which integrated reporting might improve the usefulness of annual reports of companies.
(11 Marks)

b. Identify the FOUR major aims of the International Integrated Reporting Council (IIRC) in the evolution of corporate reporting.
(4 Marks)
(Total 15 Marks)

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MGE – Nov 2014 – L2 – Q2 – Strategic Planning Process

Elements of a corporate mission statement to reflect values, customer focus, and ethical operations.

In January 2014, Mr. Uzodike Okoh, the Managing Director of DEF Oil Mills Limited, constituted a Strategic Planning Committee to coordinate the development of a five-year strategic plan for the company. This is the first time a formal strategic plan is being attempted in the company.

After several meetings of the Strategic Planning Committee, Mr. Ibrahim Edoro, the Chairman of the Strategic Planning Committee, presented what he described as a road map to actualize the objectives of the company. Several sub-committees were constituted to work on different aspects of the strategic plan.

Mrs. Edwards is the Chairperson of the sub-committee assigned to articulate and draw up the mission statement of the company. The Chairman of the Strategic Planning Committee took particular interest in the work of this sub-committee because, according to him, an appropriate mission statement would set the tone of the strategic plan, galvanise energies of the entire workforce, and set a clear direction for the company.

At the first meeting of the mission statement’s sub-committee, Mrs. Edwards distributed working papers, which included the history of the company. Speeches delivered by the pioneer Managing Director on different occasions and mission statements of similar companies were also provided.

The next meeting of the sub-committee was a brainstorming session in which participants were asked to identify the key elements that should be incorporated into the mission statement of the company.

Required:

As a member of the sub-committee on mission statement, identify and explain any FIVE elements which may be incorporated into the mission statement of the company.
(20 Marks)

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CSME – May 2024 – L2 – SC – Q7 – Risk Management and Corporate Strategy

Discuss the inherent risks that affect the profitability of an insurance company operating internationally.

At an in-house seminar for the top management staff of your organization, you have been appointed to present a report on the significant risks that have negatively affected the profitability of the two lines of business as presented in the Annual Report and Accounts of an insurance company with branches both within and outside Nigeria.

Required:

Present a report to the Management as a consultant, detailing the ‘risks inherent in an insurance company’.

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CSME – Nov 2019 – L2 – Q5a – Risk Management and Corporate Strategy

Outlines a presentation on the functions and determinants of the efficiency of a risk manager.

(a) You are preparing for a job interview as a risk manager. This requires you to make a ten-minute presentation on the functions and determinants of the efficiency of a risk manager.

Required:
Present an outline of your 10-minute presentation. (10 Marks)

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MGE – May 2018 – L2 – Q1b – Market and Product Development Strategies

Distinguishing market and product development strategies using Agaba Limited as a case study.

Ansoff argued that when a firm is planning its growth strategies, there should be a link between its current products and markets and its future products and markets. The management of Agaba Limited, an Aba-based company, has anchored its strategies for product-market development on Ansoff’s growth vector matrix.

Required:
Distinguish between market development strategy and product development strategy adopted by Agaba Limited. (6 Marks)

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SCS – MAR 2024 – L3 – Q1a – Strategy, stakeholders, and mission

Analyze the three levels of strategy being pursued by Prestige Designers Ltd.

Johnson, Scholes, and Whittington identified three levels of strategy, namely corporate strategy, business strategy, and functional strategy. These strategies should be consistent with each other.

Required: In the light of the statements above, analyze the three levels of strategy being pursued by Prestige Designers Ltd. (10 marks)

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SCS – July 2023 – L3 – Q2b – Strategy Implementation

Explain three broad corporate parenting styles described by Goold and Campbell that SavvyTech might adopt.

SavvyTech plc’s management team is debating the corporate parenting strategy that should be adopted. Corporate parenting refers to the relationship between the Head Office and the strategic business unit staff in Utopia.

Required:
As a lead consultant, explain to SavvyTech plc management team THREE (3) broad parenting styles that might be adopted as described by Goold and Campbell (1991).

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SCS – March 2023 – L3 – Q5 – Strategy implementation

Uses Fitzgerald and Moon’s performance measurement dimensions to link LCH’s performance assessment to corporate strategy.

Fitzgerald and Moon (1996) provided a framework for analysing performance management systems in service industries like a hospital. They suggested that a performance management system in a service organisation can be analysed as a combination of three building blocks, namely:
i) Dimensions
ii) Standards
iii) Rewards.

Required:
Using Dimensions as a tool for performance measurement, discuss how LCH could link performance assessment to corporate strategy.
(10 marks)

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CSME – Mar/Jul 2020 – L2 – Q1 – CSME – Mar/July 2020 – L2 – Q1 – Air Spirit Strategic Analysis Using Bowman’s Strategic Clock and Porter’s Five Forces

Analyze Air Spirit Limited's competitive strategy using Bowman’s Strategic Clock and Porter’s Five Forces model.

Air Spirit Limited, a leading aviation company in Nigeria, is involved in passenger and cargo airline business. The company was established in 1980 and since inception, it has maintained leadership in the passenger airline business in Nigeria. The company has been able to leverage on experience, leading to efficiency in its operations which competitors have not been able to replicate. Hence, it has assumed cost leadership position in the industry. The firm currently pursues a low-price strategy and offers the lowest fare for all categories of flights (economy, business, and first class) in the market and its cargo services. Service quality of Air Spirit is adjudged by the flying public as second to none in terms of quality, efficiency, and safety with customer benefits rated above those of its rivals.

As a growth strategy, the company plans to expand its product offerings to include chartered flights. Target market includes politicians, businessmen, and high-net-worth individuals. It is estimated that the chartered flights market is growing at 10% annually. Also, the chartered flights market is currently serviced by only one company; Royal Airlines Limited, which covers only the Lagos-Abuja route. Setup cost is high, thereby providing a barrier for new entrants. The company hopes to leverage on existing competencies in the passenger and cargo market to build the best chartered flights company in the country within the next three years, offering excellent services and benefits that would be difficult to replicate by competitors. It has built a strong relationship with aircraft suppliers and maintenance contractors. This will facilitate easy access to needed inputs. It hopes to commence operations across several routes, most of which are not currently serviced by its competitor. The company believes that the capabilities obtained from the passenger and cargo airline business will enable it to offer the lowest fare in the chartered flights industry.

Required:
a. From the scenario above, use Bowman’s Strategic Clock to analyse the effectiveness of the current strategy of Air Spirit Limited in the passenger airline business. (22 Marks)
b. Using Porter’s Five Forces model, advise the management of Air Spirit Limited on the level of competition in the chartered flights market. (18 Marks)

(Total 40 Marks)

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