Chapter 7
Conclusion: Financial Position of Apex-Pal

ESSENTIAL INTER-DEPENDENT PRACTICES FOR GROWTH
CONCLUSION

To complete our analysis of Apex-Pal, we now look at and analyse the present financial situation of the company. This will consist of looking at the balance sheets, profit and loss (P&L) statements and cash flow statements of Apex-Pal, and analysing the implications of the figures reported.

We will also look at the figures reported for the consolidated segments (also called Company on the financial statements), as that includes the financial impact of subsidiaries of Apex-Pal. This will make for a more meaningful analysis as Apex-Pal has a controlling interest in its subsidiaries and thus these subsidiaries will have a significant effect on the financial situation of Apex-Pal. The group segment does not include the beneficial and possibly detrimental effects Apex-Pal's subsidiaries have on the company. All figures are quoted in Singapore dollars, unless otherwise stated.

Balance Sheet Analysis

First, we begin our analysis with that of the balance sheet, which can be found in the company's annual report (refer to Appendix B).

Comparing the current assets of 2006 and 2007, we can see that they have decreased from $16,367,000 to $13,034,000. On closer examination, we can see that the bulk of the decline in current assets resulted from a significant decline in cash and bank balances from $10 million to $4.9 million. This decline resulted from significantly higher dividends paid out in 2007. Other receivables increased from $4,234,000 in 2006 to $6,028,000 in 2007. This may very well be harmless, with the increase in receivables tying in with the increase in sales volume as Apex-Pal expands. However, the company should continue to monitor it over the next few years as any substantial increase will reflect poorly on the collection methods employed by Apex-Pal, and this will in turn translate into poor cash flows for the company. In general, while there is nothing for one to be alarmed about, the current asset position is one area that Apex-Pal can pay more attention to, as it forges ahead with more overseas and local expansions.

Moving on, we look at the non-current assets of Apex-Pal. These paint a very rosy picture for the company, growing approximately 49% from 2006 to 2007, with absolute numbers of $12,433,000 and $18,516,000 respectively. These reflect an increase in property, industrial plants and equipment of the company, which indicate that the company has achieved strong growth and expansion over the year 2007, boding well for Apex-Pal.

Coming to total current liabilities, we see that it increased significantly from $7,864,000 in 2006 to $14,562,000 in 2007. With regards to non-current liabilities, we see a moderate increase from $421,000 in 2006 to $590,000 in 2007. Once

again, the rapid growth in current liabilities is in line with its rapid expansion, as trade payables more than doubled from $3.6 million in 2006 to $8.3 million in 2007.

Now we look at issued capital, which represents the value of the shares issued by Apex-Pal. Between 2006 and 2007, there was no change in issued capital.

Lastly, we look at the accumulated profits. These represent the amount of profits that the company keeps for itself, after giving out payments such as dividends and bonuses. Thus an increase in accumulated profits reflects a profitable company. As we see from the balance sheet, accumulated profits decreased from $9,823,000 in 2006 to $5,694,000 in 2007 which resulted from the higher dividends paid out in 2007 compared to 2006.

Profit and Loss (P&L) Statement Analysis

Having analysed the underlying trends of the balance sheet, we now turn our attention to that of the P&L statement, which is where the derivation of the profits/losses experienced by Apex-Pal is shown, allowing us to identify the impact of the various income components on Apex-Pal's bottom line. For this, we look at the breakdown of the P&L statement, which shows both the absolute values and the percentage composition values (refer to Appendix B).

Looking at the raw numbers for revenue, we see a substantial jump from $66,645,000 in 2006 to $83,838,000 in 2007. Cost of Sales increased from 26.94% of revenue to 28.36%, thus showing that despite the aggressive growth in 2007, cost of sales did not go up significantly.

Looking at administrative expenses and operating expenses, we note that both went up somewhat significantly.

This was due to higher operating costs incurred in items such as salaries, rentals and utilities.

As a result of all the above, net profit margin declined from 7.62% in 2006 to 2.70% in 2007, thus indicating that 2007 was a very challenging year for Apex-Pal. But there are many reasons to be hopeful for Apex-Pal. Given the fact that the bulk of the expenses is associated with the higher operating costs like salary, rental and utilities, and the fact that Douglas Foo is determined to keep costs under control, we believe that 2008 will turn out to be a profitable year for Apex-Pal.

Cash Flow Statement Analysis

Looking at the Cash Flow statement (please refer to Appendix B), there are three points of focus in our analysis, namely the cash flow from operating activities, cash flow from investing activities and cash flow from financing activities. These three different cash flows add up to form total cash flow, which affects the amount of cash the business has to invest in new ventures or to manage its day-to-day expenses. Total cash flow also affects the total cash balance of a company, as it determines if there is a need to draw down or add to this cash balance.

First, we examine the net cash flow from operating activities, which are cash flows that arise from the day-to-day operations of the company and are potentially recurring cash flows. The larger and more positive the cash flows, the better. From 2006 to 2007, we see that the net cash flow from operating activities increased from $7,652,000 to $8,259,000 respectively. This is a good indication that the company is running increasingly profitable operations which in turn are generating a steady stream of cash inflows.

Next, we look at the net cash flow from investing activities. This is the cash flow that arises from the company's investing activities, such as the buying of new plants, property or equipment. A negative number is usually a good sign as it indicates that the company is actively expanding, hence the cash outflows which are represented by a negative cash flow. This will hopefully lead to larger cash flows from operating activities in the future, as the investments bear fruit. Net cash flow from investing activities showed no significant change from 2006.

Lastly, we look at net cash flows from the financing activities, which is the cash derived from activities the company undertake to raise capital, such as issuing new stock or

new debt. Generally, a positive number is preferred as this means that the capital raising activities undertaken by the company have yielded cash. Net cash from financing activities decreased from $1,848,000 in 2006 to – $4,098,000 due mainly to the large dividends handed out to its shareholders.

Now, having looked at the three components of changes in cash flow, we have to see the effect they have on the company's cash balance at the end of the year. This is very important to the company as this cash store serves as a store of funds for the company to use in its day-to-day expenses and also as a source of funding for new investments or projects. As can be seen from Appendix B, cash balance declined significantly between 2006 and 2007. This was due to the high divided payout in 2007. The high level of dividend payout is unlikely to be repeated in 2008, as there appears to be no cash flow problems for Apel-Pal.

Overall Financial Situation of Apex-Pal

Having performed a thorough financial analysis based on the financial statements reported in the annual report 2007, we now aim to provide an overview of the financial situation of Apex-Pal.

2007 proved to be a difficult year for Apex-Pal; the professional fees associated with the Thai Village Voluntary Conditional Offer, as well as generally increased costs of operations led to a drastic decline in net profit of 55.51% to $2.26 million. However, we believe that Apex-Pal is a forward-looking company. Despite the difficult operating conditions, it continues to look to the future and does not fear opening new outlets. Although cash in the bank has declined significantly, it is still sufficient to handle day-to-day operations.

ESSENTIAL INTER-DEPENDENT PRACTICES FOR GROWTH

Sakae Sushi faces stiff competition in the Japanese F&B industry both in Singapore and its foreign markets. In addition, Sakae Sushi is expanding robustly in the attempt to capture larger markets. For Sakae Sushi to achieve its vision, it is important for various practices in the organisation to support one another and work towards common goals.

As seen from the diagram above, there are five factors, namely, values, structure, leadership, human resource management and policies that can account for the growth at Sakae Sushi. These factors interact to guide and direct employees who make up the workforce of Sakae Sushi.

To have the kind of leadership that is seen in Apex-Pal, organisational structure and culture of communication must be supportive. Foo is a leader who empowers, thus a rigid structure with emphasis on hierarchy will create imbalance. Fortunately, this is not the case, as Apex-Pal is fairly decentralised. Leadership style impacts on the design of organisational structure, which in turn shapes the management and company culture. Everything centres on effective leadership to ensure that human resource policies and management flows in accordance to the company's vision.

Organisational structure and HR policies work together in helping Apex-Pal to follow its growth and innovation strategy and stay competitive in the markets they are in. In order to stay flexible to respond to the changing needs of its consumers, Apex-Pal needs to stay organic and decentralised. In order to stay organic, the company needs to empower its employees with the authority to make decisions without the constant need to consult higher authority. However, not all the employees may have the proper skills and abilities to make the correct decisions. This is where the HR practices come in. By providing employees with adequate training and skills upgrading, these employees will possess the required skills to make effective decisions on their own. Apex-Pal will be able to keep its organisational structure organic and flexible, allowing the company to respond quickly and adequately to the uncertainties in its competitive environment.

Besides providing employees with the proper training, Apex-Pal first needs to hire the correct people that can

support the organic structure that the company needs in order to survive. This is where further interactions between the HR policies and the organisational structure come in. HR must understand what type of people the organisation needs before it can hire the correct people.

Firstly, management should come up with a list of qualities that they feel that their new employees should have. In order to maintain an organic structure, some of these qualities are flexibility, adaptability to change, and creativity. Employees should also be multi-skilled and be willing to learn and upgrade themselves. Once the HR department is aware of all that they should be looking out for in a new hire, they can proceed to hire people that will support the organisational structure of the company. This in turn will support the company's overall strategy of growth through innovation.

There are also links between organisational structure and the values and culture of the company. When empowering employees with the authority to make decisions, there is always the uncertainty that the employees will abuse their power to benefit themselves. After all, humans tend to take care of themselves before taking care of others around them. Therefore, in order to curb the tendency for employees to abuse their power, the company should always look after its employees first, to make sure that all their wants and needs are satisfied. In this way, employees will have no reason to abuse their power for selfish gains.

Thus, the culture in Apex-Pal of caring for their employees will have a positive effect on the organisational structure of the company. Employees will feel more motivated to do their best for Apex-Pal, and use their skills, abilities and the authority that they are trusted with to make decisions that would benefit Apex-Pal. This will also create a culture

of mutual trust and respect between the company and its employees. There is the understanding that the company will take care of its employees in exchange for their best efforts in contributing to the company.

Furthermore, by incorporating strategies of marketing, operations and finance, synergy is created between these elements to make it difficult for competitors to imitate. As the cage of Southwest Airlines demonstrates, competitors may try to imitate some aspects of Southwest's strategy, but the results that they achieve do not even begin to match the success of Southwest. Southwest still retains the competitive advantage over its competitors because the competitors are not able to achieve the synergy that arises from the interaction between the explicit and implicit parts of Southwest's strategy, which includes the company culture and values.

Finally, the overall strategy provides Sakae Sushi with a strong platform to head for growth and strive towards its vision.

CONCLUSION

From its humble beginnings as a single outlet operation, Apex-Pal has grown into a multi-national food and beverage company with over 80 outlets operating in seven countries covering 12 cities. The fact that it has an excellent business model with a myriad of distinctive core competencies is difficult to dispute. In particular, Sakae Sushi's success is a result of a multitude of factors linking up and complementing each other to give it a strong competitive advantage that is difficult to duplicate. It is easy to see whether a Sakae Sushi outlet is profitable as a whole, but breaking down specific strategic components to explain success to date is impossible.

Sakae Sushi's dominance in Singapore is likely to remain, although creating further growth remains challenging as competitors continue to spring up in an already saturated market. Growing the Sakae Sushi brand will certainly involve expansion into overseas markets in Asia and the United States, where the opportunities and potential rewards are tremendous. Sakae Sushi's planned expansion into Russia underlines its clear intentions to foray into new markets and establish itself as a strong global brand. The biggest internal obstacle is the need to share a common vision and goal amongst Foo, his leaders, management teams and other subordinates. The fact that he is strategically one step ahead of the employees should be taken as a strength rather than a weakness. Apex Pal needs to drive and push stronger even as it faces the competition.

Having the most number of sushi outlets in Singapore equates to high dispersion of outlets, which makes Sakae Sushi easily accessible to the public, as we have found from the survey conducted. Nonetheless, it does not mean that Sakae Sushi is at the top of the competition. Local competitors such as Sushi Tei and Ichiban Boshi should be taken seriously when making decisions. Strong emphasis on quality (food and service) instead of quantity needs to be maintained and continuously improved. The large presence of Sakae Sushi in Singapore is an indicator that its performance surpasses that of its competitors. Nonetheless, Foo and his teams should be constantly on guard to ward off threats from new entrants and those coming from existing Japanese food chains. Despite all these, there still remain many other challenges which are possible to overcome through careful planning and preempting the competition. As the market already has a good perception of Sakae Sushi, things can only get better with effective strategic implementation.

If Apex-Pal is able to keep its organisational structure flexible and organic while it expands, its strong HR policies coupled with sound and visionary leadership will serve to enhance its already outstanding product offering, and will put it in good stead to continue growing as strongly as it has done over the last decade.