Assignment Task

About the business

You are the CEO of a multi-national financial services business. Founded in the UK in the 1980s, the business concentrates on providing specialist insurance, trade finance, and associated services, including consulting, for companies involved in international commodities trading. The business does not have retail customers. Its expertise and focus are business-to-business.

Shareholders and company control

The company is listed on the main London Stock Exchange with a roster of institutional shareholders, the largest of which is an insurance company with an 8% stake. You and the other directors collectively own around 2.5% of the company. The value of the shares is £440 million. Trading performance The business’s clients are UK based in the main with 85% of the turnover and 90% of the profits after tax coming from UK commodity traders and brokers. There are a few European based companies who provide the rest of the business. Group turnover is £ 500 million per annum with net profits at £ 60 million, and profits, after tax, are £45 million. There is no debt. Cash in the bank totals £ 89 million at the time of the report. ROCE is 35%. Despite this healthy financial position, over the past few years, business growth has stagnated somewhat.

Opportunity knocks

However, because of your positive reputation, you have been asked on many occasions, to provide services for Australian commodity businesses who export to China. Similarly, Chinese commodities buyers based in London have asked you to provide services for them in their local markets. You feel that you should expand to exploit the Chinese market and believe that, in order to do the job properly, you need to commit to opening a business where commodity buyers and sellers are - therefore in China.

You feel that you should expand to exploit the Chinese market and believe that, in order to do the job properly, you need to commit to opening a business where commodity buyers and sellers are - therefore in China. Over the years, several of your predecessors as CEO have proposed similar actions. Indeed, once the company did expand into the US market, only to close the operation when commodity prices slumped resulting in client collapses with your company being owed significant fees. Other issues included cultural differences. You view this as a valuable learning experience for the company, rather than a reason not to try and expand again.