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T4 B - February/ May 2012 Case Discussion on JOT TOY Company

Posted: Wednesday 08 February 2012 by A. Rankesh
Replies : 16
Keywords: Alana, February 2012, Jon, JOT, Jot Preseen T4, may 2012, Micheal Verner, preseen, Sonja Rosik, T4 Part B 2012, Tani, Toy Case study

A Broad discussion on the JOT Toy company which is the Preseen for the February/ May 2012 T4 Part B Examination. This Forum would discuss the key areas to be focused on the Preseen and anticipate potential areas where the Unseen can be based on. Further the discussion will facilitate the users to share(Subject to the Site user agreement) information, resources and tips to pass T4 Part B. 

 

T4 pre seen

Posted by Tony on Saturday 18 February 2012 17:21
Did anyone contribute to this. I would be interested in this.

Interesting article

Posted by Ashley Teppler on Sunday 19 February 2012 23:59

I've just started looking for relevant news articles to help with May 2012 exam preparation and came accross this article.

 

http://www.telegraph.co.uk/finance/businessclub/8743823/Rising-costs-squ...

Good luck everyone 

Telegraph link

Posted by Dee Marwaha on Tuesday 20 March 2012 02:21
Thanks for the link, but doesn't Underground (mentioned in the telegraph artcile) actually manufacture toys in the UK, largely by licensing IP from entertainment companies? That's what the founder seemed to be complaining about (I think) ... jot creates its own IP and outsources it's manufacture to China, right? Kinda different business model, I reckon...

Underground Toys

Posted by Ashley Teppler on Saturday 31 March 2012 17:27

Hi Dee

They do outsource their manufacture, as indicated by this quote near the end "The US market, served by a San Diego office, represents about two thirds of its revenues, and it also sells to distributors in France, Australia and Germany directly from the Chinese factories where all of its products are made." so I thought that was relevant especially where it mentions rising costs eg "The rising cost of fuel, labour and raw materials is also making manufacturing in China increasingly expensive, Oddie says, and even finding workers there is proving more difficult.". 

What i also found interesting was the mention of high power customers such as Tesco which are driving prices down to 9.99 resulting in downward royalty price pressure for licensors. This would have been a great example in the Feb 2012 paper as a large powerful customer was one of the issues. 

Another important factor was the power of the larger toy companies and their tight knit relationship with licensors resulting in smaller companies being squeezed out, but i suppose this is typical of any industry.

One thing i suspect in the exam is the possibility of venture capital finance for expansion, something else that was mentioned near the end.

I may be wrong but judging from their news feed on their site they have won prizes for their designs of licenced toys, so i suspect they only pay royalties on the name brand and use their own designs, otherwise if the licensor already had a design they could outsource the manufacturing themselves and sell direct to distributors. The difficulty is in defining the intellectual property ie: the copyrighted designed vs. the trademarked character/movie etc. 

Im doing self study so trying to get an understanding of the industry from news articles. Good luck for May 

Another link

Posted by Ashley Teppler on Tuesday 20 March 2012 23:59

This next link starts with underground toys but has comments about the industry, especially from an outsourcing and near sourcing perspective, from other companies

 

http://www.telegraph.co.uk/finance/businessclub/8743887/Expert-views-on-Underground-Toys.html 

Toy Industries Of Europe

Posted by Ashley Teppler on Tuesday 20 March 2012 23:56

Another useful link

http://www.tietoy.org/toy-sector-in-europe/

 Some good info on the general market as well as toy safety which may come up as part of the ethics issue 

Intellectual property rights in China

Posted by Ashley Teppler on Wednesday 21 March 2012 00:01
http://www.chinaipr.gov.cn/

how does Apple-Foxconn labour plan affect Jot Toy

Posted by Mwenya Mukanda on Sunday 01 April 2012 21:01

http://www.cnbc.com/id/46900297

rising  labor cost may cause China to be less attractive as an outsourcing destination,therefore making near sourcing a cheaper alternative

unethical practice by Chinese factory

Posted by Mwenya Mukanda on Sunday 01 April 2012 21:31

http://www.guardian.co.uk/environment/green-living-blog/2009/oct/28/ethi...

http://www.ethicalconsumer.org/

http://www.guardian.co.uk/world/2011/dec/04/chinese-toy-factories-christ...

examiners comments for March 2012 T4

Posted by Shruti Malhotra on Wednesday 04 April 2012 18:41
Anybody have any idea when the examiners comments will be out for T4 Mar 2012? Or do they not release it until after  the May exam? anybody want to share their own swot Analysis on case ?

swot

Posted by Satyapal Kanakaraj on Sunday 22 April 2012 10:03
Strengths·      Experienced and Time tested management style and home grown.·      Closely knit management team and capable of swift decision making process·      Management control very strong as majority of shares held by the Management·      High short-term profits depending on the licensing arrangement/ volume of sales·      Catering to a variety of market requirement·      Continuous improvement/ market presence by additions every year·      Operating profit margin of 5.58%  ·      World wide reach and distribution network·      Established low cost and high quality manufacturing network in China ·      Products supported by IPR, license and legally binding contracts.·      High product profit margin 50% to 100% to retailer·      Jot toys have electronic features with innovative/“cutting edge” new technology·      Jot has a range of toys that sell consistently well that have not changed for years. ·      Outsourced manufacturers have competitive supply contracts for key components. ·      Jot has its own in-house team of designers designing toys that are unique·      Structured and timely slow moving inventory disposal/ inventory control procedures·      Growth of 17.9% in 2011 and high growth in sales for coming years·      Good level of understanding and commitment with outsourced manufacturers.·      Fully Integrated logistics systems fast efficient with outsourced logistics company·      Tracking of products moving into Jots three warehouses·      Structured Tendering and procurement pricing process ·      Jots management team is conscious  of corporate social responsibilities·      European brand image facilitating increased margin·      Independent Marketing team·      Conscious of CSR norms Concerns·   Counterfeit from uncontrolled markets impacting the success of new designs·   Low cost substitutes·   Low product shelf life and high obsolescence·   Success of design depends on strength of the market assessment·   Sales and admin team to be deployed for whole year when sales is seasonal·   Price deciding factor for selecting outsourced vendor·   Bank loan exhausted/ over trading on payables·   Huge investment in inventory/cash flow is negative during second half of the year.·   Working capital completely Dependent on Overdraft.·   Jot Loan facility of €1,500,000, at an interest rate of 12% per year ·   Fund mobilisation as Jot is a private limited company and not listed·   Jot does not have agreements with specialised suppliers for electronic items·   Jot is very dependent on sales to large retailers,·   Retailers do not pay until at least 60 days after the invoice date. ·   High IPR/ Design and development costs are around €1.2 million each year.·   Systems do not provide Jots management team with all of the data that it requires·   IT systems  not integrated and data integrity issues/ does not aid decision making·   Jot outsources the logistics both movement of manufactured/ sales to customers. ·   Transmitting design thru unsecured network·   IPR can be bypassed doing slight modifications·   Outsourced operations cost not continuously evaluated thru open tender·   Higher  inventory turnaround time and receivables time·   Low growth rate and low margin for traditional toys·   Non exclusivity of outsourced vendors·   Use of same vendors resulting in Cartel

·   Jot does not have own outlets/ reliance on few retailers

CSR policy not announced/ HR not strong

Opportunities·   Unexplored market segments·   Experienced in the most demanded toy market segment·   Good track record for possible Listing in the stock exchange·   Reduction on the unit costs for logistics operation has recently been negotiated.·   Near-shoring - business processes of sourcing work in a  nearby country.·   Jot brand name is synonymous with quality electronic toys.·   Sales Director, free to concentrate on securing sales in wider geographical markets·   Marketing support Jots customers receive has  positive impact at global toy fairs·   Other areas of the world, including the Russian, Europe and the Asian markets·   Delivery of products direct to customers.·   Good quality and clear marketing literature by the new team·   5-year plan shows growth in sales at 17% for 2012 and 13% to 14% for rest 4 years

Establishment of links and promotion of the Jot brand in new geographical markets as well as further market penetration in Europe and the competitive USA market.

Threats·   Jot financier would not be able to provide any additional long-term finance·   Threats on outsourcing of work  to foreign, distant companies·   Antidumping/tariff on imports·   Product design threats ·   Fixed Financial commitments due  ·   Jot  product not meeting safety regulations Jot cannot delegate this responsibility·   Wage rates in China increasing·   Threat from indigenous brands from growing markets·   Exchange fluctuation risk·   Key customers discontinuing products

 

swot

Posted by Shruti Malhotra on Sunday 22 April 2012 17:41

Thanks Satyapal,

 

Thats one really detailed analysis, anything on Ethics u specifically spotted?

 

Challenges and Strategies

Posted by Satyapal Kanakaraj on Monday 23 April 2012 04:21

I will get back on ethics. mean while pl share views on challenges and strategies. 

 

Challenges facing Jot Toys

Managing Receivables within the credit period
Managing vendor credit at 90 days to meet requirements
Repayment of Loan
Increasing Profit margins in sustain operations
Managing Cashflows to Pay dividends,manage overdraft within limits and to repay loan Loan
 
 
 
Strategies
Direct delivery of inventory
Just  in time manufacture and delivery
Direct delivery outlets
Sharing of R&D costs by partnering with markets/ patent sharing which is more than 20% of Cost 
Nearsourcing
Competetive bidding process instead of going through Known bidders
Enhancing Information System to meet requirements

P&L, Balance sheet and Cashflow projection for 5 yrs

Posted by Satyapal Kanakaraj on Monday 23 April 2012 04:32
Profit & Loss Account
  2010 2011 2012 2013 2014 2015 2016
Revenue 8371 9866 11568 13124 14791 16840 19260
Cost of Sales 5615 6719 7832 8846 9925 11249 12789
Gross Profit 2756 3147 3736 4278 4866 5591 6471
               
Distribution Costs 478 552 647 734 828 942 1078
Administrative expenses 1825 2044 2395 2724 3078 3512 4046
  2303 2596 3042 3458 3905 4454 5123
Operating Profit 453 551 694 820 961 1137 1348
Finance Income 12 13 15 17 19 22 25
Finance Expenses 201 213 248 280 315 357 405
               
Profit before Tax 264 351 461 557 666 802 967
Tax Expenses 79 105 138 167 199 240 289
               
Profit for the period 185 246 323 390 466 562 678
               
               
               
Balance sheet
Non current Assets 721 750 780 812 844 878 913
               
Inventory 470 542 644 727 816 925 1051
Trade receivables 3173 4065 4754 5393 6078 6921 7915
Cash 29 21 30 30 40 40 40
  4393 5378 6208 6962 7778 8763 9920
               
Equity 130 130 130 130 130 130 130
Retained Earnings 556 802 1125 1515 1982 2544 3222
  686 932 1255 1645 2112 2674 3352
               
Long term Liabilities 1600 1600 1600 1600 1100 600 0
               
Bank Overedraft 790 960 1928 2096 2736 3400 4176
Trade payables 1238 1781 1287 1454 1631 1849 2102
Tax payable 79 105 138 167 199 240 289
  4393 5378 6208 6962 7778 8763 9920
               
               
Cash flow
Profit Before Tax   351 461 557 666 802 967
               
Depreciation   240 250 260 270 281 292
Finance Costs (Net)   200 233 263 295 335 381
               
(Increase) / Decrease in inventory   -72 -102 -83 -89 -109 -127
(Increase) / Decrease in Trade Receviables   -892 -689 -639 -685 -842 -995
(Increase) / Decrease in Trade Payables   543 -494 167 177 218 253
               
Repayment of Bank loan         -500 -500 -600
Finance Cost paid   -200 -233 -263 -295 -335 -381
Tax Paid   -79 -105 -138 -167 -199 -240
               
Purchase of non current assets   -269 -280 -291 -303 -315 -328
               
Increase in Overdraft   170 968 169 640 664 776
Net change   -8 9 0 10 0 0
               
               
Inventory Turnover (days) 31 29 30 30 30 30 30
Receivable Days 138 150 150 150 150 150 150
Gross Profit Ratio 32.92% 31.90% 32.30% 32.60% 32.90% 33.20% 33.60%
Net Profit 2.21% 2.49% 2.79% 2.97% 3.15% 3.34% 3.52%
Finance Costs 2.40% 2.16% 2.15% 2.14% 2.13% 2.12% 2.10%
Admin Expenses 21.80% 20.72% 20.71% 20.76% 20.81% 20.85% 21.01%
Distribution & Admin costs 27.51% 26.31% 26.30% 26.35% 26.40% 26.45% 26.60%
Tax 30% 30% 30% 30% 30% 30% 30%
Distribution Costs 5.71% 5.59% 5.59% 5.59% 5.59% 5.59% 5.59%
Credit period by Vendors days 80 97 60 60 60 60 60
Units   706300 868500 977500 1102000 1240000 1405000
Sale price per unit   13.97 13.32 13.43 13.42 13.58 13.71

Addition to Above

Posted by Muhammad Tahir on Monday 23 April 2012 08:38

I want to add..... 

High product profit margin 50% to 100% to retailer = Point in favor of frwd integration

Managing Receivables within the credit period (Offer Discounts on early payments)

Managing vendor credit at 90 days to meet requirements (Re-negotiate the agreement for higher credit terms)

Repayment of Loan (Re-schedule loan Agreement with bank; Go for listing & IPO Ultimately)

Jot Valuation

Posted by Sean Cannon on Wednesday 25 April 2012 16:21

Hi,

Has anyone got some numbers on  a value per share for Jot, if we are faced with VC financing or an acquisition bid in the unseen??

A firm like  Vtech has a PE of around 14 , but obviously adjusting for risk and non listed etc, a PE of 8 would give a valuation( based on pre seen 2011 earnings) of 2M Euro , I feel it could be a bit low??

Any thoughts would be much appreciated

Best of luck to all