The HKICPA Accounting and Business Management Case Competition 2017-18 (Level 2)

The HKICPA Accounting and

Business Management

Case Competition

2017-18

(Level 2)

Hung Fook Tong Group Holdings Limited (“Hung Fook Tong”), together with its subsidiaries (hereinafter referred to as the “Group”) are principally engaged in the production and sales of a variety of herbal and non-herbal products under its reputable and award-winning “Hung Fook Tong” brand. Established in 1986 and as the first local herbal tea enterprise listed on the Main Board of The Stock Exchange of Hong Kong Limited in July 2014, with stock code: 1446, Hung Fook Tong is a modern wellness concept food and beverage enterprise, offering a wide range of additive-free healthy food products for more than three decades.

Since the commencement of its operation, Hung Fook Tong adheres firmly to its belief in the benefits of a healthy diet and natural ingredients. As reflected in its motto of ‘‘Naturally Made, Wholeheartedly Good’’, Hung Fook Tong has adopted a ‘‘No additive” approach – No MSG and preservative is added to its product. The Group manufactures its products at its own production facilities located in Hong Kong and China and uses stringent quality control measures for its production process. Hung Fook Tong has diversified its products to cover Chinese herbal drinks and other non-herbal drinks, Chinese-style soups, tortoise herbal jelly, festive products and other food products.

The products are sold through two principal business segments: Retail and Wholesale. Currently, Hung Fook Tong has more than 130 self-operated retail shops primarily in Hong Kong and Mainland China. In terms of the number of retail shops, Hung Fook Tong is now the top retailer of Chinese herbal products in Hong Kong. With regard to the wholesale business, Hung Fook Tong has been the top seller in the Wellness Drink market for 14 consecutive years as validated by Nielsen. Its long shelf-life drinks are sold via various distributors all over the world, including Hong Kong, Mainland China, Australia, Britain, Canada, Macau, Malaysia, Netherlands, New Zealand, Philippines, Spain, Singapore, Taiwan and the United States.

During the financial year ended 31 December 2016, the Group’s revenue declined to HK$715.2 million (2015: HK$723.6 million) due to weak consumption sentiment and fierce industry competition. Despite the tough operating environment, gross profit rose modestly to HK$440.9 million (2015: HK$438.9 million), while gross profit margin increased to 61.7% (2015: 60.7%). The Group’s net profit was HK$9.0 million (2015: HK$8.7 million) including a one-off gain of HK$8.2 million from the disposal of an investment property. Excluding the one-off gain, the recurring profit of the Group for the financial year amounted to HK$0.8 million. The decline in recurring profit was mainly due to a decrease in revenue from the wholesale operation.
REQUIRED

The Hong Kong retail operation was the largest geographical operating segment of the Group. Over the past 12 months, the Group has witnessed a period of uncertainty and astonishment brought on by changes in governments and national policies that directly impacted on the global economy. According to industry forecasts, consumption sentiment in Hong Kong and Mainland China is expected to remain lackluster and the Hong Kong retail market will experience further decline in 2017.

Hung Fook Tong Group Holdings Limited has invited you, as a management consultant, to prepare a business proposal to:

Part I / Review Hung Fook Tong Group’s overall financial performance for the past TWO years, for the years ended 31 December 2015 and 2016; and
Part II / Formulate a business plan of HK$10 million for the coming TWO years (i.e. for the years ending 31 December 2018 and 2019) to further enhance the performance of Hung Fook Tong Group’s retail operations in Hong Kong.

Your business proposal should include the following:

A) / Executive summary
A concise summary of Hung Fook Tong Group’s mission, current state of business, the analyses you have performed, the key findings, the main conclusion, and the key recommendations of your business plan.
(5 marks – approximately 1 page)
B) / Introduction
The background, the objectives, and the scope of your business proposal.
(3 marks – approximately 1 page)
C) / Part I – An overall review of Hung Fook Tong Group’s financial performance
A comprehensive analysis of Hung Fook Tong Group’s financial performance for the years ended 31 December 2015 and 2016 with appropriate interpretation:
Instructions: Apply “Average” figures (e.g. Average inventory for year 2016 = 1/2 x (inventory at 1.1.2016 and 31.12.2016; Average inventory for year 2015 = 1/2 x (inventory at 1.1.2015 and 31.12.2015) on Consolidated Statement of Financial Position to work out your answers for this part.
(a)  Profitability in terms of
(i)  gross profit margin,
(ii)  net profit margin,
(iii)  return on average assets; and
(b)  Management efficiency in terms of
(i)  average inventory turnover period,
(ii)  average trade receivables collection period,
(iii)  average trade payables repayment period; and
(c)  Short-term liquidity in terms of
(i)  current ratio,
(ii)  quick ratio,
(iii)  cash ratio; and
(d)  Long-term solvency ratios in terms of
(i)  gearing ratio,
(ii)  debt to equity ratio,
(iii)  time interest earned; and
(e)  Investment ratios in terms of
(i)  dividend cover for ordinary shares,
(ii)  earnings per share (EPS),
(iii)  price earnings ratio (P/E ratio).
(Hung Fook Tong Group’s share price as at 31 December 2016: $0.65;
as at 31 December 2015: $0.85)
(30 marks – approximately 4 pages)
D) / Part II - Formulate a business plan for Hung Fook Tong Group’s operations in Hong Kong.
(a)  Financial performance of Hung Fook Tong Group’s retail operations in Hong Kong for the years ended 31 December 2015 and 2016
-  Review of the revenue, net profit before tax and net profit margin generated by Hung Fook Tong Group’s retail operations in Hong Kong in terms of trend analysis and competitor analysis.
(10 marks – approximately 2 pages)
(b)  SWOT analysis of Hung Fook Tong Group’s retail operations in Hong Kong
-  Non-financial analysis in terms of favorable/ unfavorable factors external and internal to the organization.
(20 marks – approximately 3 pages)
(c)  Business plan
-  A business plan of $10 million for launching a promotional project to improve Hung Fook Tong Group’s retail operations in Hong Kong, which should be supported by a marketing expenses budget and implementation details.
-  In order to evaluate the effectiveness of your recommendations, you are required to analyze the projected impact on store locations, sales and average spend per customer for the years ending 31 December 2018 and 2019.
(25 marks – approximately 4 pages)
E) / Conclusion
(5 marks – approximately 1 page)
F) / Appendices
-  References, glossary of terms
-  Details of market research (if any)
(2 marks)
(Total: 100 marks)

Notes

(1)  In preparing your business proposal, you should refer to Hung Fook Tong Group’s 2015 and 2016 annual reports and information, which are available on Hung Fook Tong Group’s website, or any other relevant sources.

(2)  You are required to carry out a detailed financial analysis for the past TWO years, for the years ended 31 December 2015 and 2016, and make sure all calculations are supported by appropriate formulae as attached on p.6 (Annex 1).

(3)  In preparing the business proposal, you should:

-  ensure that all your suggestions and recommendations are in line with Hung Fook Tong Group’s mission and values;

-  quote references from the annual reports with their page numbers;

-  state all relevant information such as charts, graphs, published information, references, research findings and copies of questionnaires (if any), etc., under the Appendices section;

-  state clearly any underlying assumptions which can justify your analyses and recommendations; and

-  support all your calculations with workings and explanations.

(4)  To obtain more precise projections on business plan of 2018 and 2019, you should refer to Hung Fook Tong’s website for the latest financial reports which will be available in early January 2018.

Useful references

HKICPA Accounting and Business Management Case Competition web page
www.hkicpa.org.hk/en/become-a-hkicpa/exam-bafs/cpa-bm-case
Competition Facebook Page
www.hkicpa.org.hk/facebook/casecomp
Hung Fook Tong Group Holdings Limited website
www.hungfooktong.com

Free Business seminar (Levels 1 and 2 participants)

Date: 18 November 2017 (Saturday)

Time: 9:15 a.m. – 12:45 p.m.

Venue: 27/F, Wu Chung House, 213 Queen's Road East, Wanchai

Topics: / Basic financial ratio analysis and implication; and Recap of major business and
management concepts

Free Business seminar (Level 2 participants)

Date: 27 December 2017 (Wednesday)

Time: 1:30 p.m. – 5:30 p.m.

Venue: 27/F, Wu Chung House, 213 Queen's Road East, Wanchai

Topics: / Deriving important information from financial statement; Methods of analyzing trends; Basic budget preparation; Proposal writing skills; Business management and marketing strategies; and Operations of Hung Fook Tong

Annex 1

Formula / Annual Report
Ref. page
2016 / 2015
Profitability ratios
Gross Profit Margin / Gross Profit
Sales / x 100% / p.52 / p.47
Net profit Margin / Net Profit Before Tax
Sales / x 100% / p.52 / p.47
Return on Average Assets / Net Profit After Tax
Average Total Assets / x 100% / p.52-54 / p.47-49
Management Efficiency ratios
Average Inventory Turnover Period / Average Inventory
Cost of Goods Sold / x 365 days / p.52-54,
p.94 / p.47-49, p.87
Average Trade Receivables Collection Period / Average Trade Receivables
Credit Sales / x 365 days / p.52-54, p.95-96 / p.47-49,
p.88-89
Average Trade Payables Repayment Period / Average Trade Payables
Credit Purchases / x 365 days / p. 52-54,
p.94,
p.104 / p.47-49, p.87, p.98-99
(Hints: Cost of goods sold = Opening Inventories + Credit Purchases – Closing Inventories)
Liquidity ratios
Current Ratio / Current Assets
Current Liabilities / p. 53-54 / p.48-49
Quick Ratio / Current Assets – Inventories – Prepayments
Current Liabilities / p. 53-54 / p.48-49
Cash Ratio / Cash and Cash Equivalents
Current Liabilities / p. 53-54 / p.48-49
Solvency ratios
Gearing ratio / Non-current Liabilities +
Preference Share Capital
Non-current liabilities +
Shareholders’ equity / x 100% / p. 53-54 / p.48-49
Debt to equity ratio / Total Liabilities
Shareholders' Equity / x 100% / p. 53-54 / p.48-49
Time interest earned / Profit Before Interest and Tax
Interest Expense / p.52 / p.47
Return on investment ratios
Earnings Per Share (EPS) / Profit Attributable to Owners of the Company
Number of Ordinary Shares Issued / p.52, p.86-87 / p.47, p.79-81
Price-earnings Ratio
(P/E ratio) / Current Price per Ordinary Share
Earnings Per Share (EPS) / p.52,
p.86-87 / p.47,
p.79-81
Dividend Cover for Ordinary Sharers / Net Profit After Tax – Preference Dividend
Ordinary Dividend / p.52, p.87 / p.47, p.81


REPORT FORMAT AND RULES

1.  Each team should submit a business proposal in English or Chinese. The language used depends on the choice indicated on the registration form.

2.  Font type and size: English proposal – Arial (12 points) / Chinese proposal – 新細明體(11 points). 1.5 line spacing. Margin: 1 inch for each side.

3.  The content pages SHOULD NOT include the names of team members and the school at which they are studying.

4.  Each participating team needs to submit the following items in SOFT COPY (PDF format):

l  Written business proposal;

l  An HKICPA cover sheet; and

l  A completed competition questionnaire (this can be downloaded together with the question).

5.  Save the proposal, cover sheet and completed questionnaire in THREE separate files with respective file names being shown as:

l  "Team leader full name_Team leader mobile phone no._Proposal"

(e.g. Chan Tai Man_98765432_Proposal)

l  "Team leader full name_Team leader mobile phone no._Cover Sheet"

(e.g. Chan Tai Man_98765432_Cover Sheet)

l  "Team leader full name_Team leader mobile phone no._Questionnaire"

(e.g. Chan Tai Man_98765432_Questionnaire)

6.  Each participating team should send the THREE PDF files in one email to , with the subject as "Accounting and Business Management Case Competition 2017-18 (Level 2)". Multiple submissions will be disqualified.

7.  The deadline for submission: Before 23:59, 13 February 2018 (the email receiving time by the HKICPA's mailbox shall prevail).

8.  The HKICPA has the right to disqualify any participant or team if the participant or team is found to have violated the rules of the competition.

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The HKICPA Accounting and Business Management Case Competition 2017-18 (Level 2)

Cover Sheet

(Please attach this cover sheet to your business proposal)

(Please complete in BLOCK LETTERS)

School name
Participant information:
Team leader
Name*
Form
Email
Contact number
Team member 2 / Name*
Team member 3 / Name*
Team member 4 (if any) / Name*
Team member 5 (if any) / Name*

*The names should be identical to the one you have provided on the application form, which will be used for printing certificate.

Document checklist (Please √ the boxes.)

* / Email this cover sheet
* / A business proposal (PDF format)
* / A completed competition questionnaire (to be completed by each team)
^ Any missing documents or incomplete proposal may result in the disqualification of your participation.

For official use:

Business proposal received on:
Total marks:
Team no.:
Handled by:
Remarks:

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香港會計師公會會計及商業管理個案比賽 2017-18

The HKICPA Accounting and Business Management Case Competition 2017-18

比賽問卷調查 – 第二級別 (商業企劃書)

Competition Questionnaire – Level 2 (Business proposal)

(由參賽隊伍填寫For participating teams)

此問卷之目的為收集參賽同學對比賽安排之意見，以便我們日後作出改善。每個參賽單位只須填寫一份問卷，填妥後請連同 閣下之企劃書一併電郵至香港會計師公會。

This questionnaire is used to collect the participating students' feedbacks on the competition arrangement which are important to us for improvement. Each participating unit shall complete one questionnaire only. Please spend a few minutes to complete this questionnaire and return it together with your proposal to the HKICPA by email.

請在適當位置填寫。

Please fill in the box where appropriate.

1.  你們為何參加這個比賽? 可選擇多於一項。

Why did you join the competition? You can select more than one option.

o 老師建議 Recommended by teacher

o 汲取實戰經驗 Gain real-world experience

o 提升會計知識 Enhance our accounting knowledge

o 擴闊眼界 To widen the horizon

o 豐富「其它學習經歷」 Enhance our profile for OLE

o 其它 Others (請說明 Please specify: ______)

2.  每隊參賽人數的規限是否適當(即每隊三至五人)?