Corporate Treasury

BFW3652 Treasury and credit management

Assignment Task 1 - Corporate Treasury Management (15%)

Assignment question

The context for Assessment Task One

You have just started employment in the corporate treasury department of Famitrade Group Sdn Bhd, a family-based group of companies (HQ in Petaling Jaya with one subsidiary undertaking export sales and subsidiary companies operating in the Northern Region and Southern Region of Peninsular Malaysia) with the following historical 5-year financial performance:

Consolidated Statement of Financial Position
for the year ended 31 December	2014	2015	2016	2017	2018
	RM'000	RM'000	RM'000	RM'000	RM'000
Total Assets	15,095	17,963	21,098	23,284	25,258
Non-current assets	4,169	5,273	5,020	6,325	7,131
Property, plant and equipment	3,178	4,060	3,659	4,963	5,862
Intangible assets and goodwill	203	205	393	397	399
Goodwill	195	195	383	383	383
Other intangible assets	8	10	10	14	16
Long-term financial assets	495	593	559	539	507
Other non-current assets	293	414	410	426	364
Current Assets	10,926	12,690	16,077	16,958	18,127
Inventories	3,739	4,945	5,712	6,172	6,368
Trade and other receivables	3,424	3,797	5,106	6,037	6,538
Prepayments, accrued incomes	214	395	456	330	312
Short term Financial assets	16	105	116	130	180
Cash & Cash Equivalents	2,384	2,663	3,451	3,745	3,967
Other Current Asset	1,151	785	1,236	545	762
Total Equity and liabilities	15,095	17,963	21,098	23,284	25,258
Total equity	7,650	8,200	9,079	10,400	11,318
Issued capital – ordinary shares	4,006	4,006	4,006	4,006	4,006
Retained earnings	3,714	4,220	5,040	6,263	7,079
Other reserves	-70	-26	33	131	234
Total Liabilities	7,445	9,763	12,018	12,884	13,940
Non-current liabilities	1,782	2,540	2,495	2,558	3,086
Non-current loans & borrowings	1,473	2,204	2,164	2,338	2,895
Other non-current liabilities	310	335	331	220	191
Current Liabilities	5,663	7,223	9,523	10,326	10,854
Current loans and borrowings	2,444	2,744	4,427	4,748	5,195
Trade and other payables	1,318	1,893	2,222	1,939	2,106
Other current liabilities	1,764	2,391	2,793	3,421	3,469
Current income tax liabilities	137	195	80	218	84
Consolidated Statement of Financial Position
for the year ended 31 December	2014	2015	2016	2017	2018
	RM'000	RM'000	RM'000	RM'000	RM'000
Revenue	19,789	24,433	28,942	32,629	32,039
Cost of Goods Sold	13,015	16,332	19,506	21,894	21,436
Gross profit	6,774	8,102	9,436	10,735	10,603
Selling and distribution expenses	5,014	6,413	7,689	8,561	8,588
Depreciation& impairment charges	234	267	264	329	416
Other operating income	186	248	83	125	134
Operating profit (EBIT)	1,450	1,443	1,495	2,273	1,623
EBITDA	1,760	1,689	1,747	2,174	2,015
Financial result	-177	-217	-247	-295	-267
Interest income	29	26	27	30	32
Interest expense	206	243	273	324	299
Extraordinary profit or loss figure	-76	21	11	428	23
Net - other non-operating result	2	-152	92	31	116
Profit before income tax	1,275	1,075	1,340	2,010	1,471
Income tax	443	288	279	386	255
Profit after income tax	832	787	1,061	1,624	1,216
Consolidated Statement of Cash Flows
for the year ended 31 December	2014	2015	2016	2017	2018
	RM'000	RM'000	RM'000	RM'000	RM'000
Net cash flow from (used in) operating activities	4645	1,430	1,248	1,162	1,090
Net Profit	1,275	1,075	1,340	2,010	1,471
Net cash flow from (used in) investing activities	-1,436	-1,271	-624	337	-436
Net cash flow from (used in) financing activities	911	110	17	-1,269	-507
Net increase(decrease) in cash&cash equivalents	-117	301	685	314	244
Cash at the beginning of the period	-567	-683	-382	302	616
Exchange gains(losses) on cash&cash equivalents	-56	32	43	84	96
Cash at the end of the period	-683	-382	302	616	860

The domestic market is good for the sector but with the change in the ruling coalition in the year 2018, sales revenue are stagnant at RM32 million in 2018 with the implementation of Sales and Service Tax (SST) replacing GST in Malaysia, the fuel subsidy rationalisation and the manpower and succession planning issues plaguing the industry.

After the implementation of the ASEAN Economic Community (AEC2015) with effect from 31 December 2015, ten percent (10%) of the revenue for 2018 is from the export market based on a payment remittance basis. Another 15 to 20% revenue can be generated from export sales if trade financing is made available. Access to finance is one of the problems faced by the owners of the family business as they are financially illiterate and not familiar banking and treasury products and services.

Another 10% to 20% revenue growth can be anticipated by selling to large project-based clients with an order value of no less than RM500,000 per order but the company is staying away from such large order due to collection risk and cash tied-up in the project sales where slower collection is norms.

The cash flow position of the company is erratic, some months, the cash flow is very tight especially when the GST installment is due or in the months where raw materials purchase (all locally sourced as the company have no banking lines to venture into importing their own raw materials) is high and in some other months, a free cash flow of as high as RM1 million are available in the bank current accounts. On average, due to the timing of the cash flow, from past experience, the company had six months of cash deficit and six months of cash surplus. With the cessation of GST, their cashflow has slightly improved.

The company has a banking facility with a Term Loan of RM2.5 million (with remaining 5 years to fully settle the loan), an overdraft (OD) of RM1.0 million and a combine Letter of Credit/Bankers Acceptance/Trust Receipt/Shipping Guarantee (LC/BA/TR/SG) facilities for local purchases and imports of RM5.0m, all secured against its existing premises with a market value of RM6 million as at 31 December 2018. Bank Guarantee (BG) facility of RM1 million secured against RM500,000 fixed deposit, and some hire-purchase facilities to finance capital assets acquisitions. In the months of cash deficit with OD facility being fully utilised, the company will delay suppliers’ payment while spending more concerted effort to chase after their debtors. In the period of cash surplus, the Company will settle their suppliers promptly. The erratic payment pattern deters new suppliers with better deals from doing business with the group of companies.

Required

1. Work in a group of four and based on Bursa Malaysia’s sectoral classification of listed companies, select an industry sector (and identify the sub-sector) that your group you like to work on. However, you are only able to pair with a buddy and the other pair to make a group of four will be assigned to you in the spirit of diversity. Choose from the same tutorial group as there shall be group presentation (like management presentation) to be held during tutorials/lectures after submission of group written report.

2. State your principal activities of fthe sector/sub-sector of business you have chosen. For simplicity and consistency, the above 5-year summary financial results of Famitrade Sdn Bhd is provided to you. Further details will be discussed during the lecture or tutorial.

3. Select ONE commercial bank in Malaysia and select ONE Investment bank that is operating in Malaysia which you are exploring of the possibility of starting a banking relationship to finance more export and/or project sales, apart of expanding the domestic market.

4. Go to their websites, investment or commercial bank HQ or branch or kiosk to obtain more information on all the suitable corporate treasury and banking products or corporate exercises to tap into the capital market (equity and debt) that you can recommend to the company based on the context stated above.

5. Your deliverables would be your report on the assessment of the recommended myriad of treasury and banking products and services of ONE commercial bank and ONE Investment bank that are suitable for Famitrada Group Sdn Bhd. Your justification on your choices and combination of products and services. (Your concise and precise report shall be between 1500 to 2000 words only).

REPORT STRUCTURE.

Your report should contain the following:

· Introduction: The proposition, justification of the topic, its relevance and its currency.  A brief description of the structure of the essay that is, what you are going to discuss and a sense of what you found or conclude through your investigation of this topic.

· Explanation and Analysis:  description and analysis of some of the key gaps/issues in the corporate treasury management with the use of theory and examples to support your contention. The points made should be formed in a logical and fluid sequence, with clear links between the relevant issues the company is facing. Your analysis in this section should show clear understanding and insight into the treasury and banking products and service that you are recommending, taking into account the appropriate application of the proposed facilities, its cost and ease of use, appropriate to your company’s businesses.

· Recommendations/Conclusion:  Your recommendations and conclusion should seek to bring together your key arguments/ points in a summary at the end of the essay. You should avoid raising new issues in the conclusion of your essay.

· Presentation/Referencing:  You should use the APA-referencing system. You need to show usage of a range of references in your report. Good business report presentation entails a well-written fluid piece of work devoid of grammatical and spelling mistakes.

Students are expected to have used a wide variety of sources including, refereed journal articles, books, newspapers, and the internet (should be citable references) to develop their arguments. Remember to acknowledge your sources throughout the report using the APA-referencing system. The report is to be typed using a standard 12-point font and 1.5 spacing. It should be checked for spelling, consistency, and clarity of expression.

NOTE: You are writing a business report, and so consistency of argument needs to be maintained. You can use headings and sub-headings to 'sign-post' the essay however it still needs to be consistent and retain a certain degree of fluidity. It is a referenced piece of work and as such citable references are expected to support your arguments and contentions. Tables, graphs, etc. can be used to argue and support your case. A list of references/brochures which were used to write the essay should be provided at the end of the report. 

Due date: 11 April 2019 by 5 pm. Please submit online via BFW3652 Moodle.

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