KCTP - February Pre-Seen Analysis
KCTP - November Pre-Seen Analysis
IBTC lecturer, Nicky Brouwer, has broken down the Strategic Case Study pre-seen and highlighted exactly what you NEED to know when preparing for the February Case Study exam.
Here’s what she had to say:
Biotechnology is one of the ‘new’ terms I have now explored in preparation for the KCTP case study. Biotechnology is the use of living organisms and biological systems (cellular and biomolecular processes) to develop new technologies and products that help improve our lives and the health of the planet.
Examples comprise of biofuels, vaccines, healthcare, nutrient supplements and agricultural products to name a few. It comprises 5 to 10% of the KCTP tenant’s area of focus (based on the graph on page 5 of the pre-seen). This is also an area that Capital City University has a reputation of excellence in (together with engineering materials).
The case study presents a research and development hub or technology park, which facilitates innovation and investment for the future in a collaborative, cost effective manner. This is a particularly relevant topic currently, as we start to witness the emergence of post pandemic business. Some are pulling forward while others fall behind. Underpinning it all is ESG (Environmental, social and governance) investing, focus and awareness.
The presentation of a case study is twofold, namely, to enable a case on which CIMA can assess the various syllabus areas in an integrated manner as well as to assess a student's awareness and adaptability to key global growth areas. Hence in preparation, research the theme (i.e. the case) and prior papers for topics addressed. Be able to integrate and apply all responses.
This specific case is like a mushroom of potential. It addresses innovation, a revolution of academia into application and relevance, effective use of space, collaboration, support of new ventures and shared resources.
I was commenting to an investment manager friend the other day that we don’t know what is coming or how the future will roll out, hence we need to run business effectively in the present (i.e. in the now). What does this require? Awareness of what is happening at any given moment, continuously updating risk management systems to be able to navigate and identify opportunities as well as manage obstacles. It also requires sound ethical business partners, a strong internal value system, adaptive management and the ability to take a step back to assess context.
Another critical area to have emerged over the past year is the need for business to manage operating leverage i.e. the level of fixed operating costs. Space and resource sharing support this area, as does collaboration rather than doing everything oneself.
Relevant issues that may require response in the case study exam:
- Strategic direction, expansion or shift of focus – For example, development of computer simulations, 3D printer supply or rental, quantum mechanics and quantum computers. The key with strategy is how to guide the Board on relevant and effective business strategy. One needs to be neutral and consider all sides. The E3 pillar provides the tools for such guidance and ability to thoroughly consider various angles e.g. SAF.
- Expansion – locally or in another country - To purchase, or start-up, or organically grow larger? Issues to consider when selecting a new site for a campus. Remember the principles of net present value (NPV) when valuing any venture as well as synergies if a business is purchased.
- Expansion of biotechnology and/or engineering materials - Both areas of excellence of Capital City University. What resources or changes are required?
- Venture capital funding - As many tenants are new ventures. Could KCTP provide venture capital funding or partner with a firm that specialises in such?
- Funding of a KCTP new venture or expansion – Debt versus equity versus own resources. What is the debt to equity relationship within KCTP? Can the company manage more debt? Would more debt enhance returns or add too much risk?
- ESG – What about converting the technology campus into a green space? The energy inefficiency of the cloud usage emerges in an article. Possible solutions, like solar power, batteries for power, focus on green gardens and energy efficiency of systems and processes. Also, remember the importance of open, honest and transparent communication in this area.
- Cyber-security - What if there is a breach of security? What are the considerations? How does KCTP upgrade cyber-security if need be? In fact, as security is such a vital component of this business, how is any area of security optimised/enhanced?
- Derivates – How can these fit in? Interest rate swaps to manage interest rate risk (variable versus fixed) especially in a changing interest rate environment. Exchange rate, foreign contracts or futures if paying or receiving foreign currency.
- Foreign currency risk – Translation risk with an overseas investment. Funding an overseas investment via a foreign loan.
- Disinvestment of the University’s 20% stake - Private placement? Replacement of the Non-Executive from the University?
- Board and governance issues – There seems to be a good spread of Executives to non-executives. What about the skills base of the non-executives? Should the Chairman be on all committees?
- Tenant deposits - (as seen under current liabilities on the statement of financial position) Where is this money invested? Is this money safe? What happens if this money devalues? There is a negative interest rate on long-term bonds in Europe. Is this built into the lease contract?
- Beta of 0.9 - Meaning that KCTP is slightly less responsive than the market, hence a bit defensive. This is to be considered when assessing return to shareholders.
- Relationships with reliable lessors who provide the equipment for tenants to set up and run. This links in with collaboration as a theme.
- Collaboration for creating value - This already exists with the University as well as informally between tenants. How can this theme be further generated? Reading the various articles in the pre-seen, potential for collaboration is touched on with engineers, scientists, university professors, lessors of equipment and 3D suppliers.
- The company’s mission statement refers to offering an open, strategic platform for the development of innovation, technology and enterprise. This is huge and has so much room for growth and development.
- Gain on revaluation in the statement of changes in equity (A$300 m) - What is this from? Note that Sypark also reported a similar gain.
- Internal audit – internal controls together with an effective risk management system are vital elements of today’s sustainable business. Ensure you consider these possibilities as you research the case and consider exam possibilities.
- Dividend policy - In 2019, dividend cover 1.97 times, so 50.68% of earnings are paid as dividend. How would you respond if a Board member proposed a drop in dividend pay-out ratio to fund an acquisition?
Exam technique and preparation:
- Plan your answers before starting to flesh them out. Practice planning a question answer, whether you note down key points to then be fleshed out or draw yourself some form of diagram. It is critical to ICS exam success!
- Allow your work and study experience to come through in your communications. Let your responses flow.
- Every point that is well explained can earn you 2 or even 3 marks. Everything you say should be explained. An idea is to start writing your emails differently and more clearly at work. Before pushing the ‘send’ button make sure your message is very clear, without repeating yourself.
- Keep your communications at the strategic level, remembering that the technical skills were examined in the OTs.
- Do your chosen mock exams two or even three times. Become brilliant at them, rather than do too many mocks getting 50% each time. In other words, teach yourself brilliance rather than being borderline or below.
As you work through practice mock exams and become more embedded in KCTP and the Industry as a whole, you can add to the above list and ensure you practice communicating your thoughts and views, which ideally should be informed by a blend of theory, experience and knowledge.
This is an exciting case study, as it’s extremely relevant to what is happening in the real world currently. - Nicky Brouwer, IBTC Lecturer.