CS3 Strategic Case Study Exam 2021 Questions and Answers

Save North Forest!

North Forest is located in an area of outstanding natural beauty that also includes a number of small towns and villages. Many local residents moved into the area after retiring and were attracted by the opportunity to breathe fresh air and be surrounded by beautiful views. In doing so, we have brought wealth into a local economy that was struggling because there was little employment to encourage younger people born in the area to stay.

Wodd plans to destroy North Forest in order to fuel a power station that will, in itself, spoil the view as well as polluting the atmosphere.

Globally, vast areas of forests are cleared every year for commercial exploitation. This creates untold risks for the planet because trees are responsible for giving us breathable air.

Local residents are working together with Green Marland, Marland’s largest environmental campaigner, to draw attention to the damage that Wodd is threatening to inflict on this area.

We ask you to write to the Government planning department to ask it to refuse to issue a permit for this development. We also ask you to sign our online petition and to consider joining us in peaceful and non-violent direct action against the bulldozers in the event that our efforts to block the granting of a Government permit should fail.

You have received the following email from Marcus Svenson, Finance Director:

From: Marcus Svenson, Finance Director

To: Senior Finance Manager

Subject: Biomass proposal

Hi,

The Board has just heard a presentation by an engineering consultancy concerning a proposal to develop a biomass power station adjacent to our North Forest.

The Board has asked us to put together some thoughts about the merits of this proposal. We would proceed on the basis that we would build the power station and sell the resulting electricity to the national power generator which has a number of coal-fired power stations, each of which is nearing the end of its useful life and the coal has to be shipped in, so we should find it relatively easy to guarantee sales. The power generator has indicated that it would be possible to negotiate a three year contract in the first instance, with the expectation that this would be extended by subsequent three year contracts, subject to price and performance.

We would be responsible for building and operating the power plant and we would also have to pay for 50% of the cost of power lines for connecting to the national electricity grid, with the other 50% being funded by the national power generator.

Please draft a briefing paper that I can present to the Board on the following:

How can we predict whether the share price is likely to increase or decrease if we commit ourselves to this project? You should identify the challenges associated with answering that question and indicate how we might address them.

What are the long-term risks associated with future revenues from the sale of electricity? How might we manage these?

Marcus

Reference Material:

Hello

I have attached a news article

Arrfield does not set the price for aviation fuel sold at our airports, but we do receive a percentage of the revenues earned by the fuel companies.

I need your help to prepare for a Board meeting to discuss this matter Please write a paper covering the following

* Firstly, explain the impact that the criticisms voiced by the environmental campaigners will have on the frequent PESTEL analysis that Arrfield ' s Board conducts.

[sub-task (a) = 34%

* Secondly, evaluate the commercial logic of Arrfield ' s strategy of basing charges for non-aeronautical services (such as fuel sales and retail activities) on percentages of the revenues generated by the companies that operate at its airports

[sub-task (b) = 33%)

* Thirdly, recommend with reasons whether Arrfield should attempt to justify strategic decisions to its shareholders when the commercial logic of those decisions is not immediately obvious

[sub-task (c) = 33%}

Thanks

Romuald Marek

Chief Finance Offi cer

A week later, Romuald Marek stops by your workspace and hands you a document.

The Board minute extract from Romuald can be viewed by clicking the Reference Material button above.

Reference Material

Board minutes extract: proposal to profit from ongoing strength of NS

Anna Obalowu Sole, Chief Operating Officer, reported that the strong NS was helping generate revenues from fuel sales. Discussion followed as to whether the strong N$ was likely to persist and whether a strong N$ benefits Arrfield overall.

Markus Jokela. Chief Executive Officer, stated that the Board should develop contingency plans that could be implemented if it seemed likely that the strong N$ would persist. In particular. Arrfield need not renew the contracts that permit aviation fuel suppliers to operate from its airports. Arrfield would then be free to create its own fuel sale business, buying fuel in bulk to repleni sh the storage tanks at each of its airports in Norland and then selling it directly to airlines He stated that this would almost certainly enhance Arrfield ' s share price

Romuald Marek reminded the Board that four of Arrfield ' s six airports are located in Norland and that those airports charge for aeronautical and non-aeronautical services in N$.

A month later, you receive the following email:

Reference Material:

From: Hesham El-Sayed. Independent Non-executive

Director

To: Romuald Marek. Chief Finance Officer

Subject: Collapse of fuel supplier

Hi Romuald

I am writing to give you some advance notice of an internal audit investigation that has been commissioned by the Audit Committee

Just over a year ago. Planej oos, a newly formed company, approached the management team at Airfield ' s Capital City International (CCI) airport and offered to take over refueling operations at Starport Planejoos offered a higher percentage of revenue than the existing supplier was pay ing CCI ' s management team agreed and appointed Planejoos rather than renew the existing supplier ' s contract.

CCI was unable to conduct the usual background and credit checks on Planejoos for two reasons. Firstly, Planejoos was a new company and so did not have an extensive credit history that could be checked Secondly CCI was under time pressure to reach a decision on whether to renew the existing supplier ' s contract or allow it to expire

CCI ' s management team claimed that it had acted quickly in order to benefit from the additional revenue that could be earned from dealing with Planejoos The management team was acting on the basis that it had an ethical duty to maximise the wealth of Airfield ' s shareholders and that maximising revenues from fuel sales t hrough this agreement with Planejoos was consistent with that ethical duty.

Unfortunately, as a new company. Planejoos struggled to obtain trade credit and the high demand for fuel put the company ' s cash flows under extreme pressure Receipts from sales la gged behind payments for inventory Planejoos has now collapsed, leaving a large trade receivable that CCI will have to write off as uncollectable CCI had permitted this receivable to accumulate rather

than pressing for payment and so putting Planejoos und er further pressure.

Fortunately, the previous fuel supplier was prepared to return to CCI.

Kind regards

The following email has just arrived:

From: William Seaton, Director of Finance

To: Finance Manager

Subject: News article

Hi,

My Secretary has drawn my attention to the attached newspaper clipping. I have been reading comments like this since Fouce Oil acquired its interest in 2010. We briefed the press at the time and made it clear that we would not be commenting further on our relationship with it unless it changed materially. Nothing has happened since then to make us change our mind on that.

The Board has asked me to compile a report on the following:

 How might the presence of Fouce Oil, as a 25% shareholder, affect our decision making as a Board of Directors? Perhaps, surprisingly, we have never had a formal discussion of this matter.

 How will Fouce Oil’s stake in Slide affect our share price?

I would like you to email me your thoughts on these points so that I can have as long as possible to think about what I will say to the Board.

Thanks

William

The newspaper clipping can be found by clicking on the Reference Materials button.

From: Martin Wills, Head Geologist

To: William Seaton, Director of Finance

Subject: Reserves

Hi William,

I have reviewed the situation with respect to our “probable” or “2P” reserves, as disclosed in our latest annual report. I am sorry to say that we have to downgrade our figures with respect to reserves. I am recommending that all extraction activities cease for the foreseeable future on the North Atlantic and South Atlantic fields and that the proved reserves be downgraded from proved to probable.

I have to stress that this is not attributable to any past error on the part of the geologists. The world oil price has been depressed and the discovery of large deposits of shale oil in the USA suggests that the oil price will not recover for some time. That means that some oil wells that were commercially viable this time last year are no longer worth processing.

The oil remains under the rock and I have no doubt that we will restore operations in the long term.

We are by no means the only oil company to have been forced to take this action.

The one piece of good news is that the financial statements for the year ended 31 December 2014 have already been published. My understanding is that we do not have to withdraw them, so unless you put an advertisement in the press, we can carry on quietly trying to sort this mess out.

I have my best people working on ways to extract oil from our wells more efficiently, so we may be able to increase production over the next year or so.

Martin