1. Case Discussion Axeon N V Professor: Hakan Kullven Group B8 Alvaro Rodriguez Seyoum Eshetu Arockia Durairaj Huai Shu Snehasis Pan

2. Q1. What do you feel about the initial analysis? Was there, in your opinion, anything wrong with it? Initial Analysis done Financially, there are some questions which  Optimism U K Market Potential 800 Ton/Yr? Ability to capture 50% Market? Pricing Strategy ( Price £ 4000 to £ 3700 )  Environment What About Competition and their Strategy? Competitor’s Pricing? Growth Potential Assumed to be zero or Negative No Scenario or Sensitivity Analysis  Risk Consideration Borrowing rate is not Discount Rate (It should reflect the riskiness, 8% seems inappropriate) Effect of Borrowing interest payments & amortisation not considered.

3. Q2. Is construction of the new factory in the UK in the best interest of Axeon?  No. Our Analysis Shows NPV Netherlands VS UK(£919,000Vs £916,000)  Qualitative Consideration Netherland’s Know How and Expertise. CASH FLOW ANALYSIS FOR AXEON NV Netherland YEAR01234567 SALES (Tons) 200300400 VAR COST/Ton 2060 FIX COST/Ton 450400360 PRICE/TON 40003700 OPERATING MARGIN/ Ton 149012401280 In '000£ TOTAL OPERATING MARGIN 298372512 PROMOTION COST 260150100 TAX@40% 15.288.8164.8 AFTER TAX CASHFLOW 22.8133.2247.2 WORKING CAPTIAL-120-20 0000160 NET CASH FLOW-1202.8113.2247.2 407.2 NPV (8%)£919.19

4. Q3. Why did Mr van Leuven behave as he did? Why => Because …  Gave promises to Ian He did not do his homework to investigate possible alternatives beforehand He did not involve relevant persons for further analysis He could have included Director of Manufacturing, VP Finance of Netherland Operation for discussion.  Kept silent in the meetings => he was not prepared enough  Lack of knowledge (possibly)

5. Q4. Discuss what transfer price should be established if AR-42 is supplied from the Netherlands to the UK? Netherland Operations Value Added £ 2420/Ton 94% of Total Value UK Operations Value Added £250/Ton (Promotions) 6% of Total Value  We propose a negotiated transfer price approach.  Value addition could be one base of negotiation VALUE CHAIN  Profits (3700-2670=1030) can be shared according to the value added at each operations  Our Analysis shows a transfer price of £ 3388/ton  But, The UK operations should be rewarded for their ability of identify the market.  Renegotiation when needed based on productivity improvements

6. The strategy was not explicitly stated, But We could infer  To be a market leader in Industrial Chemical Industry Reasons : o Inorganic growth through Acquisition (Acquisition of 3 foreign companies) o Geographical diversity of subsidiary for sales and distribution advantage. Each subsidiary take responsibility for sales of all Axeon products in their assigned territory. o Extensive product line (24 factories)  Share holder value maximization (EVA approach) & decentralization management control Q5. What is Axeon's corporate strategy?

7. Q6. What do you believe to be the critical success factors in Axeon? CSF -Elements necessary for an organization or project to achieve its mission.  Industry Diversified product line (Choice and Variety to customers) Promotion & Distribution Network ( Network of Subsidiaries) quick market response  Environmental providing the latest technology, market exploration & capturing segments  Strategies High volume low cost production  Temporal key talented employees, training, subsidiary management

8. Key recurring activities include Production, Distribution and sales In the Management Control Point of view, It could include  Result Control Activities Evaluation Meeting, Analysis  Action Control Activities Proposal verifications, Board Meetings Q7. What do you believe are the key recurring activities in Axeon?

9. Q8. Discuss Axeon in terms of its centralization / decentralization  Axeon emphasized high degree of decentralization, The reasons could be o Axeon have three subsidiary in different countries. o Subsidiaries were separate companies before acquisition  Subsidiary managers had autonomy to decide what to sell in their territories  Result control system were used (Accept if project return>12%)  Ineffectiveness of Mr. Van Leuven casted doubts on Decentralization  Conflict arose between parent and subsidiary- Poor management handling of issues.

10. Q9. What should Mr. Van Leuven do?  Accept His Mistake, for not giving enough clarification in the first meeting. Convince Mr. Ian with the following issues-  Producing in Netherlands more beneficial than in UK (NPV Analysis)  Elaborate on capacity availability at Netherland and No Need of borrowing  Elaborate the risk involved and implications of any downturn Final decision: Increase production in Netherlands and distribute through UK.

11. THANK YOU