SECTION A: COMPULSORY CASE STUDY. Read the following carefully and answer the questions which follow: RAABOAD LTD

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1 SECTION A: COMPULSORY CASE STUDY QUESTION 1 Read the following carefully and answer the questions which follow: RAABOAD LTD Raaboad Ltd was established 30 years ago in Accra, Ghana. Its founder was a retired Marketing Manager of a leading distribution company who decided to use his expertise to build a company that would manufacture and distribute concrete products for the construction industry. The company became a leader in the supply of roofing tiles and pavement blocks. Ten years ago, Raaboad Ltd, added the production of concrete slabs and kerbs to its business portfolio. The company has been successful in its operations because it relies on competent and dedicated workforce. The company has a head office and ten distribution depots across the country. It has a total workforce of 300. The company provides haulage services to its customers who buy in bulk. However, in recent times the management of the company has had difficulties controlling the haulage aspect of the business and is contemplating to outsource the service. Competition in the industry is becoming more intense as new entrants both foreign and local are coming in with competitive prices and modern technology. The company has to act fast in order to reposition itself as a leader in the industry. The Managing Director and his team have decided to prepare a plan for the next five years to address the challenges facing the company. At a meeting to discuss the first draft plan, the following estimates were made: Sales in the current year (2013) should reach GHC10,000,000 and forecasts for the next five years are GHC10,600,000; GHC11,400,000; GHC12,400,000; GHC13,600,000 and GHC15,000,000. The ratio of net profit after tax to sales is 10%, and this is expected to continue throughout the planning period. Total assets less current liabilities will remain around 125% of sales. It was also suggested that (i) (ii) (iii) If profits rise, dividends should rise by at least the same percentage An earnings retention rate of 50% should be maintained. The ratio of long term borrowing to long term funds (debt plus equity) is limited by the market to 30%, which happens also to be the current gearing level of the company. The proposals have been referred to a team of which you are part to prepare the financial plan for the consideration of management. ICAGP Page 1 of 6

2 (i) Draft a financial plan for the period for Raaboad Ltd. (12 marks) (ii) Comment on the plan and make recommendations for attention. Advance three (3) reasons why Raaboad Ltd should outsource the haulage service. Recommend four (4) strategies the company can use to ensure its survival in the industry. (Total 30 marks) ICAGP Page 2 of 6

3 SECTION B: Answer any two (2) questions from this section QUESTION 2 Hammond Brothers, a road haulage company, is likely to be seeking a stock exchange listing in a few years time. In preparation for this, the directors are seeking to understand certain key recommendations of the international corporate governance codes, since they realise that they will have to strengthen their corporate governance arrangements. In particular the directors require information about what the governance reports have achieved in: (i) (ii) (iii) (iv) Defining the role of non-executive directors Improving disclosure in financial accounts Strengthening the role of the auditor Protecting shareholder interests Previously also, the directors have received the majority of their income from the company in the form of salary and have decided salary levels amongst themselves. They realise that they will have to establish a remuneration committee but are unsure of its role and what it will need to function effectively. The directors also have worked together well, if informally; there is a lack of formal reporting and control systems both at the board and lower levels of management. There is also currently no internal audit department. The directors are also considering whether it will be worthwhile to employ a consultant to advise on how the company should be controlled, focusing on the controls with which the board will be most valid. Explain the purpose and role of the remuneration committee, and analyse the information requirements the committee will have in order to be able to function effectively. (8 marks) Explain what is meant by organisation and management controls and recommend the main organisation and management controls that Hammond Brothers should operate. (7 marks) (Total: 15 marks) QUESTION 3 Explain the concept of business ethics (3 marks) Monibo Ltd, is a multinational energy group, recently listed on the Stock Exchange, Mr. David Spio, the current Chief Executive has also been appointed as chairman of the Board. He is ICAGP Page 3 of 6

4 keen on imposing his views on the group and has made it clear that he is prepared to work with those who remain loyal to his cause. His shares in the company were also purchased with company funds. Outline any governance and related issues arising from David s appointment. (5 marks) A Corporate Governance Code is an important requirement for listed companies. Some argue that such a Code should be mandatory for all companies. Discuss the benefits of having a Corporate Governance Code to shareholders and other interested users of financial statements. (7 marks) (Total: 15 marks) QUESTION 4 The management of a company is often different from its owners. Explain the principle that underlies this separation and the challenges that often arise from this relationship. What is the role of an audit committee in corporate governance? (9 marks) (Total: 15 marks) ICAGP Page 4 of 6

5 SECTION C: Answer any two (2) questions from this section QUESTION 5 Globalisation is now a popular concept in business. Explain globalisation and discuss four (4) benefits of globalisation to a Ghanaian manufacturing company. (12 marks) Over the years, numerous internationally oriented strategies have been formulated and successfully followed by many different companies. Explain four (4) such strategies. (8 marks) (Total: 20 marks) QUESTION 6 Corporate strategy is primarily about the choice of direction for a firm as a whole and the management of its business or product portfolio. In choosing corporate strategies, most organisations have a wide variety of options. One such option is harvesting or defensive strategies. Explain four (4) types of harvesting strategies an organisation can use. (10 marks) The recently-appointed Chief Executive Officer (CEO) of the FSC Company intends on making the organisation more competitive. He has made it clear that he considers current operational performance to be below acceptable level. He recently stated, Costs are too high and productivity is too low. Demand for cocoa, the company s main product, is growing particularly in export markets such as countries in the Pacific and the CEO believes FSC should capitalise on this. To do this he believes some changes to working conditions at the company will be required. A reduction of import duty in some proposed export markets would also be required for profitable trading. The trade union that represents the workers of FSC Company is well-organised and has promised the workers that it will defend their wage levels and working conditions. (i) List the forces for change and causes of resistance in the FSC Company. Classify these according to whether they can be considered as deriving from internal or external sources. (5 marks) ICAGP Page 5 of 6

6 (ii) Recommend how the newly-appointed Chief Executive Officer might go about managing the process of change. (5 marks) (Total: 20 marks) QUESTION 7 A company that does not address the issue of quality of its products will be left behind by its competitors. What is the meaning of quality? (2 marks) Apple Pie Ltd employs a total quality management program and manufactures 12 different types of pie from chicken and leek to vegetarian. The directors of Apple Pie are proud of their products, and always attempt to maintain a high quality of inputs at a reasonable price. Each pie has four main elements: Aluminium foil case Pastry shell made mainly from flour and water Meat and/or vegetable filling Thin plastic wrapping The products are obtained as follows: The aluminium is obtained from a single supplier of metal related products. There are few suppliers in the industry resulting from fall in demand for aluminium related products following increased use of plastics. The flour for the pastry shell is sourced from flour millers in four different countries one source of supply is not feasible because harvests occur at different times and Apple Pie cannot store sufficient flour from one harvest for a year s production. Obtaining meat and vegetables is difficult due to the large number of suppliers located in many different countries. Recently, Apple Pie obtained significant cost savings by delegating souring of these items to a specialist third party. Plastic wrapping is obtained either directly from the manufacturer or via an internet site specialising in selling surplus wrapping from government and other sources. Explain the main characteristics of a Total Quality Management (TQM) programme. (8 marks) Identify the sourcing strategies adopted by Apple Pie and evaluate the effectiveness of those strategies for maintaining a constant and high quality supply of inputs. Your answer should also include recommendations for changes you consider necessary. (10 marks) (Total: 20 marks) ICAGP Page 6 of 6