Sam and Annabelle Burns own and manage the firm Hair Care Ltd, based in Cork, Ireland. The firm was formed in 2002 when Sam and his wife re-mortgaged their house and borrowed heavily from the bank to buy out the company from a conglomerate organization who were disposing of non-core businesses. Sam had been a senior salesman with the hair-care subsidiary of the conglomerate. This subsidiary bought hair care products, mainly small value items and consumables – scissors, brushes, combs, hair nets, curlers and hair driers, from manufacturers and resold them to wholesalers and large retail chemist chains within Ireland, mainly for use in hairdressing salons. The business has continued in this direction.
Haircare Limited’s suppliers/manufacturers are almost entirely non-Irish suppliers, many based in Hong Kong but with manufacturing facilities in mainland China, Taiwan, and Malaysia. However, about 30% of the products are sourced in Europe – Italy, and Germany predominantly. Sam and Annabelle are concerned about the long term reliability of their supply chain given the difficulties they have experienced during the COVID 19 outbreak.
|PREDICTED 3 YEAR FX RATES|
|EURO TO HONG KONG DOLLAR||ONE EURO EQUALS|
|CURRENT and 30/6/2020||10 HK $|
|31/03/2021||12 HK $|
|31/03/2022||15 HK $|
|31/03/2023||20 HK $|
The interest-only mortgage taken out to finance the purchase of the freehold will have to be repaid in the next year. Haircare Limited’s year-end is 31st March and a summary of the company’s most recent Statement of Financial Position reads as follows:
|HAIRCARE LTD – SUMMARY SOFP AS AT 31 MARCH 2020|
|STATEMENT OF FINANCIAL POSITION||2019|
|NON CURRENT ASSETS – FREEHOLD LAND & BUILDINGS||22560|
|PLANT & EQUIPMENT||2320|
|FIXTURES AND FITTINGS||320|
|7% INTEREST ONLY MORTGAGE (TO BE REPAID 30/6/20)||(10000)|
|€4 ORDINARY SHARES||10000|
|€2 4% PREFERENCE SHARES||5000|
The sourcing of the funding for the next five years is of concern to Sam and Annabelle and they wish to take advice from a corporate finance expert in this area.
Acting as an advisor to Hair Care Limited, prepare a report that;