7BSM1006 Managing Financial Value Drivers
Coursework Semester A 2012
Assessment weighting 60%
Arthur Scroggs was a farmer. His family has owned and farmed 500 acres of prime land in the Vale of Aylesbury for four generations. In the mid 1980's small farms were finding the financial climate difficult with falling farm incomes and much talk of putting farm land to "alternative use". By 1985 Arthur had already sold his dairy herd to focus on cereal production when a fortuitous meeting with Lucy Bellingham at a business conference led him to reconsider the future of the family farm. Bellingham is a designer of bespoke fitted kitchens who had a business plan but little capital. The plan was to manufacture top quality fitted kitchen furniture and establish design studios/showrooms in high income areas. Having recently sold his dairy herd, Arthur had enough capital to fund the new business and also a number of large barns and outbuildings suitable for manufacturing the kitchen units subject to refitting and planning consent being obtained. Lucy's business plan was so convincing that Arthur decided to get out of farming altogether (by leasing his arable land to a local co-operative) and focus on developing the new business. From this small beginning grew the now publicly quoted company of Bellingham plc.
Initially, showrooms were established in Beaconsfield and then Kensington. Demand for their kitchens was brisk and “Bellingham Bespoke Kitchens” expanded rapidly but remained a partnership. The firms clients are mainly celebrities from the entertainment world and the cost of a Bellingham Bespoke Kitchen is now £40,000 - £150,000 or more. The firm was restructured as a limited company in 1990 and subsequently experienced rapid growth until 1999.
In that year the then directors decided that the business had reached the limit of development in it's present form. Future development required large-scale expansion of production facilities in order to provide the range of materials, furniture, quality and prompt delivery required by their discerning clients. This in turn needed an injection of capital that the directors were unable to generate themselves. The conviction that there was much money to be made from “quality fitted kitchens" ” had been vindicated.
They investigated a number of possibilities deciding eventually to expand production facilities by purchasing a modern production unit on an industrial estate in Aylesbury. The expansion was funded by a stock market floatation and raising the necessary capital in the name of Bellingham plc.
As the market grew and to keep abreast of new production technology, the directors agreed to reverse the maxim so dear to the heart of the founders, Arthur and Lucy; “neither a (long-term) borrower nor lender be.” They financed updating of equipment and premises by means of issuing debentures.
It is now October 2012 and the present directors of Bellingham plc believe that the long-term success of the company lies in future international diversification and expansion. They consider that the most beneficial action they could take is to investigate the acquisition of a subsidiary in the USA.
The newly-appointed finance director, Bill Moneypenny, agrees with this opinion but insists that the company must first appraise its own current position and if necessary, make changes to strengthen its existing financial situation before embarking on new plans. He is
particularly concerned that the company should preserve adequate liquidity and finance its assets in a beneficial manner. He is also concerned that too much emphasis has been placed on "pandering to the whims of the rich and famous" and not enough on running an efficient business operation. Lucy and Arthur still retain 30% of Bellingham's equity and other long-standing directors own a further 20%; a change of control is unlikely to be welcome.
During the last two years, the company has updated it's...
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