Fletcher Brenton (FB) FB is an independent watchmaker which has been manufacturing watches in Switzerland since 1860. FB started with pocket watches and in 1912 was one of the first businesses to design wristwatches as fashions changed. The current CEO is Stefan Fletcher who is also the only shareholder. Two key features of his finance and accounting strategy are: • never to use long-term borrowing • to pay high dividends every year. FB has always innovated in watch technology, including the use of calendar and astronomy dials, self-winding mechanisms and the design of sports and nautical watches. Its exclusive designs and limited editions have made FB’s watches collectable and in high demand, with most selling for between $55000 and $100000. The watches are handmade in its Swiss workshop before being exported to countries to sell in FB’s showrooms. Timeline of FB 2016 Recovery from the global recession of 2008–12 has been slow, with FB reporting a loss for the fourth year in a row. 2017 FB increases promotional spending on its existing range and launches two special editions. 2018 FB expands production capacity and refurbishes its workshop in Switzerland (see Appendix 1). 2020–2021 160th anniversary watch is launched (see Appendix 2). 2022 Review of FB’s accounting and finance performance (see Appendix 3). 2023 Stefan Fletcher announces plan to retire in 2025. There is no family to pass the business onto after 162 years. Scenario plans are drawn up for the leadership and future strategies of the business (see Appendix 4). Developing a new business strategy FB is facing an uncertain future. The issue of selecting a new leader for FB following Stefan’s retirement has still not been resolved. FB and its competitors are facing a number of issues including: • advances in digital technology in the sports watch market • problems with predicting demand in a volatile global economy • changes in the competitive market. The focus of the Board of Directors is to use scenario planning to help them develop a strategy for FB. Appendix 1: Extract from Finance Report on the expansion of the workshop 2018 FB purchased the property next to its workshop for $2.2m. The cost of renovation and development of the two properties was a further $2.75m. Cash was used to fund this to keep to FB’s strategy of no long-term borrowing. Appendix 2: Extract from FB’s 160th Anniversary report 2020 2020 is our 160th anniversary and has seen the launch of our limited edition watch with a selling price of $160000. However, in unprecedented times demand and sales have fallen. This, along with the depreciation of the Swiss currency, has reduced the cash balance although the directors are confident that it is sufficient to allow FB to survive. Appendix 3: Selected financial information for FB 2016–2022 | | 2016 | 2019 | 2022 | |---|---|---|---| | Revenue ($m) | 14.2 | 59.0 | 24.1 | | Profit/(loss) for year ($m) | (3.06) | 7.2 | (0.1) | | Inventory ($m) | 12.86 | 14.9 | 16.2 | | Cash ($m) | 2.9 | 6.6 | 0.8 | | Dividends paid ($m) | 5.0 | 5.0 | 5.0 | | Gross profit margin | 31% | 34% | 29% | | Operating profit/(loss) margin | (24)% | 16.2% | 0.3% | | ROCE | (22)% | 32% | 0.3% | | Current ratio | 1.05:1 | 1.52:1 | 0.91:1 | | Acid test ratio | 0.29:1 | 0.63:1 | 0.41:1 | Appendix 4: Extract from the scenario planning for FB 2022 | Issue | Possible scenarios | |---|---| | Succession planning for Stefan’s retirement | Appoint new CEO | Sell FB | Close the business | | Volatility in the global market | Exchange rate volatility | Income volatility | The competitive market | | Changes in sports watch technology | Lead new technology development | Follow new technology development | Leave sports watch market |