DUE DATE: Friday, Week 15, 09:00 AM
WORD LIMIT: 2000 words (excl. executive summary, TOC & references) Please write your word count on the front page!
All students are required to submit this assessment via the ACC03043 SCU Blackboard learning site. Hard copy and email submissions will not be accepted and late submission penalties will apply to assignments that are not submitted on time via the specified Blackboard site.
The questions at the end are all based on the ‘ABC International Ltd’ case study below. ABC
International is a fictitious company based on a composite of various companies in the Hang Seng index.
Case: ABC International Ltd.
ABC International Ltd. was incorporated in 1968 as a manufacturer of electrical components and telephone equipment in Hong Kong. In 1979 ABC entered into a joint venture with an Australian group in the telecommunications field and opened a factory in Shenzhen to manufacture components. Subsequently rights were acquired to manufacture and sell a range of telecommunications equipment in Hong Kong and China. This proved to be a very successful arrangement and ABC grew substantially in turnover, profits and employees.
The company was listed on the Hong Kong stock market in 1997.
Business performance and prospects
The company manufactures and markets a range of equipment for large telecommunication systems, a proprietary telecommunication system for smaller organisations, and a range of telecommunication devices for the office and home. These markets include government, military, and industrial customers, as well as retail outlets. Growth is expected in each of these markets in Hong Kong and China. A mail order facility through the internet is being designed for direct sales. The business also has the potential to expand geographical throughout Asia Pacific, but a covenant in their joint venture agreement with their Australian partner prevents growth elsewhere in the world.
New products developments come from the Australian joint venture partner, who has also licensed various products, devices, and software from the United States. ABC is currently considering a strategy to develop a range of its own products and systems.
Competition for the existing range of products is high, except in the military field where there are various restrictions. Moreover, there are a number of new technologies, including wireless communication, computer based systems, and telecommunication systems convergence, that could have strategic implications for ABC. New entrants into the market could include computer manufacturers, telephone companies, and media network providers.
ABC imports some specialised electronic components from Australia, Japan, and the United States, manufactures other equipment and assembles the products and systems in its Shenzhen factory.
In his annual report to shareholders, the chairman said that:
“We expect the PRC to maintain its prudent approach to stable financial and monetary policies so as to strengthen and improve the effectiveness of its austerity measures. Your company will benefit from the growth of infra-structural investment at government and industry level and from the increasing spending power of consumers”
A recent report in the financial press said that:
“The shares of ABC International raced up yesterday with a bullish report from Salmon, Smith Barney. The company’s recent announcement, of its latest range of telecommunication products, supports this confidence. Growing optimism on consumer spending and booming sales in electronic products in both the office and home markets also fuelled the enthusiasm. The company’s earning prospects seem bright and it will also benefit from lower costs on imported products due to the weak Japanese yen and the economic slowdown in the US.”
In the latest published accounts the chairman of the board reported that turnover in 2004 had exceeded expectations at $237,632,000, but that profits were lower than analysts’ expectations, at $6,693,000, due to one off write-offs of obsolete stocks. The company did not pay a dividend this year, ploughing back profits into product development and expanding production capacity.
ABC International reported 1,280 employees at end 2004: 370 in Hong Kong, 910 in Shenzhen. Labour productivity had steadily improved in recent years, partly due to investment in capitally intensive manufacturing and assembly methods.
According to a Hong Kong financial information company the balance of shareholdings in ABC at present is:
Goldbarb (a company registered in Bermuda) 39.8% Transelec (a company incorporated in Australia) 15.6%
Institutional investor (1) 8.8%
Other institutional investors (6) 10.2%
Other investors 25.6% 44.6%
The investment report states that Goldbarb is the holding company for the founding family’s investment in ABC and that Transelec is the Australian joint venture partner. Transelec is the wholly owned subsidiary of a company incorporated in Delaware in the United States and listed on the New York Stock Exchange.
Share price history
The floatation in 1997 the ABC share price had risen from 19.80p per share to 63.5p, with an 11% growth over the year 2004.
Board of directors
The latest annual report states that the board had eight members:
Alan K M. Yau President
Peter Y. M. Chow Vice President
Charles K. K. Lau Director Operations
Johnny Y. K. Ho Director Finance
Dr. Andy H. S. Woo Director Development
Rebecca H. S. Sun Director Personnel
Independent non-executive directors
Abraham P. K. Lau
Frederick W. L. Ho
The company secretary is Rebecca S. S. Cheung
Corporate governance report / annual report includes the statement that:
“In the opinion of the board, the company has complied with the code of best practices as set out in Appendix 14 to the Listing Rules throughout the accounting year covered by this report. An audit committee was established with terms of reference which deal clearly with its authority and duties in Paragraph 14 of Appendix 14 of the Listing Rules, including a review of the company’s financial reporting processes and internal audit systems and the review of audited financial statements. Two independent non-executive directors have been appointed to the audit committee and a third member is being actively sought.”
The company’s auditors are Deloitte Touche Tohmatsu, Hong Kong.
Mr. Y. K. Chan has sought your advice. He is a qualified accountant, employed as the Finance Director of Dim Sum Ltd; a Hong Kong listed company in the food industry.
Mr. Y. K. Chan has been asked by Mr Alan K.M.Yau, the Chairman of ABC International (another Hong Kong listed company), whether he would consider joining the board of ABC as an independent nonexecutive director. The Chairman also suggested that Mr. Chan should join the company’s audit committee.
Mr. Chan tells you that he does not know the Chairman of ABC very well. He was introduced to him by
Mr Johnny Y. K. Ho, the ABC Finance Director, who serves with Mr. Chan on a committee of the Hong
Kong Institute of Certified Public Accountants. Mr. Chan subsequently had dinner with Mr Yau (chairman) at the China Club, where the growth of ABC, its current activities, and its prospects for the future were described.
Mr. Chan is an executive director of Dim Sum, but has no other experience of serving on boards of directors. He holds no shares in ABC, but would be prepared to invest up to HK$100,000. He believes that his wife’s father also has some ABC shares. As far as he knows Dim Sum does not have business dealings with ABC, although he thinks the Dim Sum internal communications system uses ABC equipment.
Mr. Y. K. Chan has asked for your professional advice. Please write a report to him discussing the matters he should consider, in particular related to:
1. Duties, rights and competences of a director (10 marks)
2. Committee work (10 marks)
3. Board structure and styles (10 marks)
4. Transparency and accountability of the company (10 marks)
• Your paper is to be written in report format (for case studies, i.e. it should consist of an executive summary, table of contents, introduction/case background, body of analysis, conclusion and the reference list - see the quick guide ‘Writing reports’ in the ‘Assessment Tasks and Submission’ section), observing Harvard referencing style and a clear and logical structure, along with the ability to express yourself clearly and succinctly.
• Your arguments have to be based on concepts and tools discussed in the topics of this unit and must be supported through direct reference to (academic) literature (recent peer-reviewed journals preferred). The report will be assessed based on your ability to develop arguments supported by relevant and valid sources (please also refer to marking criteria). You are expected to use at least 5 academic sources (excluding the textbook) to support your viewpoints. All sources must be properly referenced.
• In addition to the academic references, and in case you want or need additional information about the case, feel free to engage with non-academic literature, i.e. in order to gain a broader and more detailed understanding of the case study environment, you can mention and use information and facts from valid newspapers, magazines and/or official reports. Again, all sources must be properly referenced.
• Assignments strictly have to be within the word limit (- / + 10 %)
• Where cases of plagiarism are found, students will be sanctioned in accordance with university policy (see Blackboard for more information).
• All students will be required to submit their assessments via the ACC03043 SCU Blackboard learning site, utilising a Turnitin assignment link. Students will be able to amend and resubmit their assessment following a Turnitin review (ie. multiple submissions are allowed up until the due date).
A detailed marking rubric (i.e. marking criteria) will be made available on the ACC03043 Blackboard site (see Assessment Tasks and Submission).
END OF CASE STUDY