File note 0034/002Company OverviewWandsleigh Wands Ltd owns and operates 2 manufacturing units in East Anglia. Thecompany HQ headquarters are located in Wansted, London. It employs 680 employeesin total. That is, approx. 300 in each manufacturing unit and 80 staff who are based atthe company HQ.The company is owned by the founders, Greg and Graham, with a 15% share each, anumber of senior executives, including the CEO, with a total of 40% between them(none with more than 5%), and 30% by Alpha Investments, a private equity fund.Wandsleigh Wands Ltd is a UK privately owned company focusing upon the manufacturer oftechnology products under license (covering the period 2018-2028).A range of different products are produced each period to meet existing client orders.Currently the company is direct labour-intensive orientated utilising highly skilled andqualified staff. Due to the nature of the jobs, there is a low level of indirect costs relative todirect costs.Their financial performance has been deteriorating, although not significantly affected byCovid-19. The directors have set out a proposal to change the operational structure of thebusiness and have asked for our independent critique of the proposal. They claim to demandan investment return of 20% on all parts of the business.The directors have a difficult relationship with the current major shareholders so treadcarefully. In particular the existing shareholders are not strong advocates of the companyCSR efforts to support reduce reliance on traditional energy and to support local charities.These changes are estimated to cost £50,000 p.a.In the file posted on the server (VLE) the Landtech team have shared some initial researchand baseline figures exploring the Wandsleigh proposal. You must undertake the full criticalanalysis on behalf of Dr Nurse as part of for overall investment advice.File note 0034/003Capital StructureThere are 30 million voting shares in issue and, according to a recent presentation givento the company by an investment bank the equity is worth £80-100m. (LandtechDecember 2020 valuation).The company paid dividends last two years of £0,80 per share. The company has debt asfollows:• £20m in the form of subordinated loan stock provided by AlphaInvestments at a fixed rate of 6.2%• £40m bank loan repayable 2030 and a valuable rate of 3.8%about bank base rateFile note 0034/004Prepared by Sara Vasilu, Landtech Ltd technical division Wandsleigh Wands LtdSummary of Financial ResultsYE 30.06.2020YE 30.06.2019£m£mTurnover70.0080.00Staff costs-24.00-23.50Other direct costs-20.00-21.50Gross profit26.0035.00Overheads-7.00-6.00Taxation-2.00-4.00Net profit17.0025.00Dividends300.8-24.00-24.00Retained profit or loss-8.001.00Selected ratiosWorking Capital ratio1.2:11.8:1ROCE8%13% File note 0034/005Wandsleigh Wands – Business Development ProposalDirectors are considering developing into a new market by introducing a more assetreliant and digital-based manufacturing system which will mean a higher level ofoverheads relative to direct costs.The aim is to increase capacity and maintain a good position in a highlycompetitive international market.Capital asset RequirementsThe Director of Operations estimates that a more capital intensive and digitalenvironment will require funds as follows:1. Software design and upgrades/improvements: £0.7m per year for the next 4years2. New computer hardware: £3.0 m per manufacturing unit3. Manufacturing assets including installation: £25mNew methods of operation will also require an increase in the training budget of £2,000pa per employee in the first year and £1,200 pa thereafter. Computer hardware woulddepreciate on a reducing balance basis of 30% per year for the first two years and 50%thereafter. Manufacturing assets would depreciate on a 10% straight line.The introduction of the new technology would mean a significant change in workingpractices and a significant reduction in the size of the workforce. It is thought that up to240 staff could be made redundant at a cost of 60% of their annual salary. Averagesalaries throughout the company are £40,000 pa.A certain number of new specialist staff would need to be recruited (25 from year oneand 10 in each of the following two years) to support the change. However, it isestimated the company would generate and additional £18m of revenue with acontribution to sales ratio of 12% from year 2 onward.Moving to the new process will reduce waste saving around £20,000 pa althoughenergy usage will increase by £50,000 pa.
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