strategic management uum

8/10/2019 strategic management uum

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TABLE OF CONTENTS

1.0INTRODUCTION 3

2.0ORGANIZATION BACKGROUND 3

3.0CORPORATE MANAGEMENT 5

3.1BOARDS OF DIRECTORS 6

3.2BOARDS ROLES AND RESPONSIBILITY 11

3.3SHAREHOLDERS 11

4.0EXTERNAL ASSESMENTS 13

4.1POLITICAL, GOVERNMENT AND NATURAL ENVIRONMENT 13

FORCES

4.2ECONOMIC FORCES 14

4.3SOCIAL, CULTURE, DEMOGRAPHIC, AND NATURAL 15

ENVIRONMENT FORCES

4.4TECHNOLOGICAL FORCES 15

4.5COMPETITIVE FORCES 16

4.5.1 RIVALRY AMONG COMPETING FIRMS 16

4.5.2 POTENTIAL ENTRY OF NEW COMPETITORS 17

4.5.3 POTENTIAL DEVELOPMENT OF SUBSTITUTE 17

PRODUCT

4.5.4 BARGAINING POWER OF SUPPLIERS 17

4.5.5 BARGAINING POWER OF CONSUMERS 17

5.0INTERNAL ASSESMENTS 19

5.1MANAGEMENT 19

5.2MARKETING 19

5.3FINANCE 19

5.4OPERATION OR PRODUCTION 21

6.0STRATEGIC FACTORS ANALYSIS 23

6.1SWOT ANALYSIS 23

6.2TOWS MATRIX 24


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6.3RATIO ANALYSIS 25

7.0ALTERNATIVE STRATEGIC AND SELECTED STRATEGY 30

8.0IMPLEMENTATION OF STRATEGY 31

9.0STRATEGY APPRAISAL AND CONTROL 33

10.0 CONCLUSION 35

11.0 REFERENCES 36


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1.0 INTRODUCTION

Power Root Berhad, an investment holding company, engages in the manufacture and

distribution of beverage products principally in Malaysia. The company offers coffee and tea

products; energy drinks; cereal drinks; flavoured drinks; isotonic drinks; and chocolate malt

drinks, as well as Tongkat Ali and Kacip Fatimah drinks. It also distributes health and beauty

products. In addition, the company is involved in the property development and construction

activities. Power Root Berhad also exports its products. The company was formerly known as

Natural Bio Resources Berhad. Power Root Berhad was founded in 1999 and is headquartered in

Kuala Lumpur, Malaysia.

2.0 ORGANIZATION BACKGROUND

Power Root (M) Sdn Bhdwas founded on 23 July 1999 in Johor Bahru, Johor. It is a

leading company to develop and promote herbal energy drinks fortified with two main rainforest

herbs: Eurycoma longifolia Jack or commonly known as "Tongkat Ali" and Labisia Pumilia and

Pathoina or "Kacip Fatimah". These herbs are indigenous to Malaysia and its properties for

promoting physical well-being are highly regarded by Malaysians.Power Root (M) Sdn. Bhd. is

now a subsidiary of a public listed company. Power Root Berhad (formerly known as Natural

Bio Resources Berhad), a company listed on the Main Market of Bursa Malaysia Securities

Berhad with the determination to promote these local products in the international markets. The

company operates in local and export market. The local market relates to sales to customers

within Malaysia. the export market relates to sales to overseas customers with Middle East Asia

being the principal market segment. Power Root has invested heavily in research anddevelopment of these traditional herbs to create its own brand of products. In March 2001, Power

Root established a marketing branch in Kuala Lumpur to better coordinate its logistic and serve

its customers more effectively. In 2003, Power Root started its very own manufacturing plant in

Johor Bahru to cater for growing demands. An 18-acre phase 1 manufacturing facility is

expected to be completed early 2008, incorporating modern production technology to cater for


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the strong market demand locally, business development opportunities abroad and new

formulations development. Power Root with its entrepreneur spirit, is committed to provide

consumers with the ultimate choice of a high quality product. Concentrated efforts in research

and development to develop new and improve existing products have also accelerated its success

in the market. As such, the company was able to quickly establish a stable business foundation

and thus, creates a very promising future for the company.

In the span of the last few years, Power Root has established a strong and aggressive

marketing network in Malaysia. These high quality products combined with aggressive

promotional and marketing campaigns have made Power Root a leading brand in the Malaysia

market. On the export front, Power Root has tie-ups with foreign distributors in the countries

where its products are marketed as in Korea, Indonesia, Singapore, China, Hong Kong, Taiwan,

Japan, Thailand, Brunei and Middle East. With its acute awareness of shifting lifestyle trend, the

company will continuously improve and target the market with different products.

Mission : To produce high quality products that exceed customers' expectations, which

will subsequently improve the quality of its customers lifestyle

Vision : Power Root want to expand its product in the international markets and

ultimately, to make its brand "Power Root" a household name globally.


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3.0 CORPORATE MANAGEMENT

BOARD OF DIRECTORS

Independent Non-Executive Chairman

Y.M. Tengku Shamsulbhari bin Tengku Azman Shah, SMK.

Managing Director

Dato Low Chee Yen

Executive Director

Dato How Say Swee

Executive Director

See Thuan Po

Independent Non-Executive Director

Ong Kheng Swee

Non-Independent Non-Executive Director

Datuk Sarchu bin Sawal

(Alternate Director to Y.M. Tengku

Shamsulbhari bin Tengku Azman Shah, SMK.)

Dato Tea Choo Keng

Executive Director

Dato Wong Fuei Boon


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3.1 BOARDS OF DIRECTORS BACKGROUND

Y.M. Tengku Shamsulbhari bin Tengku Azman Shah, SMK.

Independent Non-Executive Chairman

Y.M. Tengku was appointed as our Independent Non-Executive Chairman on 2 February 2007.

He is also the member of the Audit Committee and the Chairman of the Nomination and

Remuneration Committees.Y.M. Tengku graduated with a Diploma in Finance from the Institute

of Cost & Executive Accountants, London. He is the director and shareholder of several private

companies undertaking the businesses of manufacturing, logistics management and construction.

He is also the Vice President of the Persatuan Pedagang dan Pengusaha Melayu Malaysia,

Negeri Selangor and Ketua Bahagian Negeri Selangor Persatuan Bekas Pasukan Keselamatan

Negara, Malaysia. Y.M. Tengku does not have any family relationship with any Director or

substantial shareholder of the Company, nor does he have any conflict of interest with the Group.

He does not hold any other directorships in other listed entities and has not been convicted of any

offences within the past ten (10) years. He attended 4 out of 4 Board meetings held during the

financial year ended 28 February 2013.

Dato Low Chee Yen

Managing Director.

Dato Low Chee Yen was appointed as our Managing Director on 2 February 2007. He was also

a member of the Nomination and Remuneration Committees. He is one of the founding members

of the Group and has 13 years of experience in the food and beverage industry. He started his

career in direct marketing before venturing into his own business producing drink concentrates in

1998. With his vision and belief on the potential of functional instant beverages, he set up Power

Root (M) Sdn Bhd and Power Root Marketing Sdn Bhd, wholly owned subsidiaries of Power

Root Berhad with the other founding directors. Dato Low does not have any family relationship

with any Director or substantial shareholder of the Company, nor does he have any confl ict of


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with the Group. He does not hold any other directorships in other listed entities and has not been

convicted of any offences within the past ten (10) years. He attended 3 out of 4 Board meetings

held during the fi nancial year ended 28 February 2013.

See Thuan Po

Executive Director

See Thuan Po was appointed as our Executive Director on 27 October 2007. He holds a second

upper honours degree in Accounting and Finance from the London School of Economics and

Political Science and is member of the Institute of Chartered Accountants of England and Wales.

His career path included auditing with Clarke & Co. Chartered Accountants, London for more

than 3 years and investment banking with CIMB Investment Bank Berhad, having placements

with the Corporate Finance and Structure Investment Divisions for approximately 5 years. Mr.

See does not have any family relationship with any Director or substantial shareholder of the

Company, nor does he have any confl ict of interest with the Group. He does not hold any other

directorships in other listed entities and has not been convicted of any offences within the past

ten (10) years.He attended 4 out of 4 Board meetings held during the fi nancial year ended 28

February 2013.

Datuk Sarchu bin Sawal

Non-Independent Non-Executive Director

Datuk Sarchu bin Sawal was appointed as our Non-Independent Non-Executive Director on 18

June 2007. He is also the member of Audit Committee. He graduated with a Bachelor of

Economic (Statistics) from University of Malaya in year 1973 and subsequently obtained a

Master in Business Administration (Finance) from Catholic University of Leuven, Belgium in

year 1977. Datuk Sarchu has been with the Felda Group since 1974. From 1997 to 2010, he

served as the CEO of Koperasi Permodalan Felda Malaysia Berhad and then as the CEO of KPF

Holdings Sdn Bhd till his retirement at the end of December 2012.Datuk Sarchu does not have


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any family relationship with any Director or substantial shareholder of the Company, nor does he

have any confl ict of interest with the Group. He also sits in the Board of Felda Commerce-KPF

Ventures Sdn. Bhd. and Gold Coin (M) Group Sdn. Bhd. He has not been convicted of any

offences within the past ten (10) years. He attended 4 out of 4 Board meetings held during the fi

nancial year ended 28 February 2013.

Ong Kheng Swee

Independent Non-Executive Director

Ong Kheng Swee was appointed as our Independent Non-Executive Director on 15 February

2008. He is also the Chairman of the Audit Committee, a member of the Remuneration

Committee and Nomination Committee. Mr. Ong is a Fellow of the Association of Chartered

Certifi ed Accountants of United Kingdom, a member of the Malaysian Institute of Accountants

and a Fellow of the Chartered Tax Institute of Malaysia. He held various senior positions in both

theprofessional sector (having worked with two major international accounting firms) and in the

commercial sector as financial controller, group finance director and management consultant in

various industries including petrochemicals, ceramic tiles, minerals and glass. He is currently the

Executive Director/CFO of an automotive components group of companies. He is also an

Independent Non-Executive Director of Yi-Lai Berhad, a company listed on the Main Market of

Bursa Securities Berhad. Mr. Ong does not have any family relationship with any Director or

substantial shareholder of the Company, nor does he have any confl ict of interest with the

Group. He has not been convicted of any offences within the past ten (10) years. He attended 4

out of 4 Board meetings during the fi nancial year ended 28 February 2013.


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Dato Tea Choo Keng

Alternate Director of Y.M. Tengku Shamsulbhari bin Tengku Azman Shah, SMK.

Dato Tea Choo Keng was appointed as the Alternate Director to Y.M. Tengku on 2 February

2007. He graduated with a law degree (LL.B Hons) from the University of Hull (United

Kingdom) in 1991. He was called to Bar and admitted as the advocate and solicitor in 1993. He

set up his own legal practice under the name of Messrs Tea & Company in year 1994. He is now

the managing partner of Messrs Tea, Kelvin Kang & Co, a legal fi rm in Johor Bahru. Dato Tea

does not have any family relationship with any Director or substantial shareholder of the

Company, nor does he have any confl ict of interest with the Group. He is an Independent Non-

Executive Director of Lien Hoe Corporation Berhad, a company listed on the Main Market of

Bursa Malaysia Securities Berhad. He has not been convicted of any offences within the past ten

(10) years. He attended 4 out of 4 Board meetings held during the fi nancial year ended 28

February 2013.


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3.2 BOARDS ROLE AND RESPONSIBILTIES

The Board is assuming the following, amongst other roles and responsibilities, broad categories

of roles and responsibilities:

1) Reviewing and approval of the strategic plans for the group and monitoring thereof;

2) Overseeing the conduct and the performance of the group;

3) Reviewing and managing principal risks affecting the group;

4) Reviewing the competence of the senior management and to ensure sufficient succession

planning of senior Management team is put in place;

5) Reviewing the adequacy and integrity of the group internal control systems and management

information system;

6) Reviewing and approving policies relating to investor relations and shareholder

communication programmers.

3.3 SHAREHOLDERS

Shareholders are important to a business as they are a major source of capital and their money is

what is used to start a business and help it to continue its operations. Aside from contributing

their money, shareholders have a stake in the company and this causes them to contribute with

creative and innovative ideas that help the business grow and increase its market share in the

industry it is involved in.


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LIST OF DIRECTORS SHAREHOLDINGS

No. Name of Directors Shareholdings %

1. Y.M. Tengku Shamsulbhari bin Tengku

Azman Shah, SMK. - -

2 Low Chee Yen 55,695,130 18.57

3 Wong Fuei Boon 55,737,630 18.58

4 How Say Swee 55,938,330 18.65

5 Ong Kheng Swee - -

6 Tea Choo Keng 800,000 0.27

7 Sarchu bin Sawal - -

8 See Thuan Po 155,000 0.05

LIST OF SUBSTANTIAL SHAREHOLDERS

No. Name of Substantial Shareholders Shareholdings %

1 How Say Swee 55,938,330 18.65

2 Wong Fuei Boon 55,737,630 18.58

3 Low Chee Yen 55,695,130 18.57

4 Koperasi Permodalan Felda Malaysia Berhad 48,570,300 16.19


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4.0 EXTERNAL ASSESSMENT

The external forces can be divided into five broad categories which are political or legal

forces, economic forces, social or natural environment forces, technology forces and competitive

force.

4.1 POLITICAL, GOVERNMENT, AND NATURAL ENVIRONMENT FORCES

In this particular topic, it will be discussingthe liaise with auditors, bankers and

government authority and also the assist in audit or tax preparation. In the organization, Y.M.

Tengku was appointed as the Independent Non-Executive Chairman and also the

member of the Audit Committee and the Chairman of the Nomination and Remuneration

Committees. He is also presently the Vice President of the Persatuan Pedagang dan

Pengusaha Melayu Malaysia. The relationship between the organization and government sector

can be a great opportunity to lead the organization growth to achieve sustainability in the

Malaysia market.

Secondly, as Malaysia is popularly known as an Islamic nation, all food sectors operating

within thenation will have to be approved by JAKIM to justified the food is halal or not. JAKIM

is a Malaysian Government institution which has established Malaysias Halal logo and

implemented the Halal Certification System. JAKIM is the governing body that issues Halal

certificate for local and export markets. Moreover, JAKIM is also the monitoring and

enforcement body for halal guidelines. Other than justified halal, JAKIM also ensure the

guaranteed the cleanliness efficiently and effectively of food quality.

Third, in the Malaysias government policy, manufacturers need to acquire the SIRIM

standard if they are involved in the production. Organizations need to ensure that products are

safe to eat and above standard quality. This mark may be used on its own product or in the

combination with the accreditation mark which appears on the management system certificate

issued to the organizations. The mark used shall clearly reflect the management system for which

the organization has been certified and the certificate reference number.


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markets.

4.3 SOCIAL, CULTURE, DEMOGRAPHIC, AND NATURAL ENVIRONMENT

FORCES

Demographics and psychographic of Power Root are group ages around 18 to 55

yearswhich includes married couples, gender male or female and for lifestyle energy. Their

products target is to provideextra energy for peoples who need sexual energy albeit a legal way.

The segmental information is presented on the basis of geographical segment, which is

based on the geographical location of the customers:

Revenue RM

Malaysia 45,239

Oversea 25,458

Overall 70,697

No other segmental information, such as the segmental assetsand liabilities, are presented

as the industry is principally engaged in one industry, which involves the manufacturing and

distribution of beverage. This is also because they only operates from Malaysia and generally,

the industry does not have any significant seasonal sales cycle, except during the Muslim fasting

month, where sales would be lower.

Power Root also have actively organised and participated in numerous ground events with the

objective of promoting products and increasing reputation.

4.4 TECHNOLOGICAL FORCES

In 2003, Power Root started its very own manufacturing plant in Johor Bahru to cater for

growing demands. An 18-acre phase 1 manufacturing facility is expected to be completed early


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2008, incorporating modern production technology to cater for the strong local market demand,

business development opportunities abroad and new formulations development.

Power root with its entrepreneur spirit, is committed to provide consumers with the

ultimate choice of a high quality product. Concentrated efforts in research and development to

develop new and improve existing products have also accelerated its success in the market. As

such, the company was able to quickly establish a stable business foundation and thus, creates a

very promising future for the company.

4.5 COMPETITIVE FORCES

5 force model of competition which is competitive rivalry, potential entrants, power of

buyers, substitutesproduct, and power of suppliers.

4.5.1 RIVALRY AMONG COMPETING FIRMS

Among the competing firms of food and beverages industry, Power Root fierce

competitors are NESTLE And F&N. Nestle commitment to providing quality products to

Malaysians dates back almost 100 years ago. Nestle began in Malaysia in 1912 as the Anglo-

Swiss Condensed Milk Company in Penang and later, due to growth and expansion made a move

to Kuala Lumpur in 1939.

On the other hand, F&N is amongst the regionsand Malaysias oldest companiesand its

brand enjoys the rare distinction of being a market leader and household name in many

categories. From purveyors of carbonated soft drinks, the F&N Group is one of Malaysias

diversified blue chip companies with leadership of the nations beverages and dairy products.

The Group has grown from strength to greater strength with an annual turnover in access of RM4

billion from its core business in the manufacture, sale and marketing of soft drinks, dairies, non-

carbonated beverages as well as property.In Malaysia, F&N operates under the banner of Fraser

& Neave Holdings Bhd (F&NHB), which is the Malaysian arm of Fraser And Neave, Limited.


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In short, most of Power Roots competitorsin the sector have their own advantages in

competing with each other.

4.5.2 POTENTIAL ENTRY OF NEW COMPETITORS

The threat of new competitors entering in the food and beverages industry is considered

high. To start with the industry, an organization needs to own a high capital and quality

assurance as halal certificate, food GMP certified, product of Malaysia certified, chemlab

melamine analyse report and others.

4.5.3 POTENTIAL DEVELOPMENT OF SUBSTITUTE PRODUCT

In food and beverage industries where competitive rivalry is consider high, there are

many company involve in beverage sector and most of the competitor have a good capability.

For example, milk, milo and so on.

4.5.4 BARGAINING POWER OF SUPPLIERS

The power of suppliers are considered too be high. The plantation is one of the suppliers

in beverage industries where the plantation of herbs and coffee are in excess within Malaysia.

4.5.5 BARGAINING POWER OF CONSUMERS

The power of buyers in the beverage industry is high. Buyers had little bargaining power

because of others competitors in market. The prices for this industry are moderate where not too

high and not too low.

An important part of an external audit is identifying rival firms and determining their

strengths, weaknesses, capabilities, opportunities, threats, objectives and strategies.


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Strengths: Strong foothold in Malaysia, with 18-24% in Coffee and 29-33% in Energy drink

market shares. Also presently a known market leader in the UAE coffee premix market.

Weaknesses:Increasing contribution from exports could cause a seasonality effect on the

groups revenue.

Opportunities: Could set up a production facility in the UAE to support growth and reduce

delivery lead time in the Middle East and African regions.

Threats: Low barriers of entry requires constant A&P budget (15%-20% of revenue)/ new

product launches.


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5.0 INTERNAL ASSESSMENT

The internal forces can be divided into six broad categories which are the management,

marketing, finance, production or operation, value chain analysis, and benchmarking. This forms

the firms strengths that cannot be easily matched/ imitated by competitors.

5.1 MANAGEMNET

Researcher believes that the employees of Power Root are the greatest assets. As such,

the company relentlessly provides an on-going training to enhance its employees' skills and

knowledge as well as providing a conducive environment that allows its employees to achieve

their greater potential. As the company recognizes that human capital is one of the key drivers

towards future growth and financial performance, through its holding company Power Root

berhad (formerly known as natural bio resources berhad ), an Employee Share Option Scheme

was developed with the view of rewarding, motivating and incentivising its employees as well as

allowing them to participate in the equity of the company.

5.2 MARKETING

In the span of the last few years, Power Root has established a strong and aggressive

marketing network in Malaysia. These high quality products combined with aggressive

promotional and marketing campaigns have madePower Root a leading brand in the Malaysia

market. On the export front,Power Root has tie-ups with foreign distributors in the countries

where its products are marketed. With its acute awareness of shifting lifestyle trend, the company

will continuously improve and target the market with different products.

5.3 FINANCE

The main products of Power Root are instant premixed coffeeandenergy drink. From

what we could observed in the hypermarket, it's fair enough to say that Alicafe series is now the

top local brand in the premixed coffee market. as such, the Power Root series also have a

significant market share in the energy drink segment.


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Historical data of the company:

RM million

FY* Revenue PAT

2007 154.0 34.7

2008 178.5 39.3

2009 138.1 9.8

2010 153.1 10.2

2011 184.8 12.2

2012 217.0 16.7

* FY ended 28-Feb each year.

Its performance had dropped significantly in 2009. However, the company manage to recover

from the economic crisis, and had shown a CAGR of more than 12% during 2009 to 2012.

Segmental Data:

RM million % %

FYE Local Export Total Local Export

2008 159.4 19.0 178.5 89 11

2009 118.9 19.2 138.1 86 14

2010 133.7 19.4 153.1 87 13

2011 155.0 29.8 184.8 84 16

2012 170.8 46.2 217.0 79 21

It is also observed that the company's performances in the past few years were partially

boosted by the export market. Its export revenue had become more than doubled within two

years time from 2010 to 2012.

While it is confident that Power Root could maintain its market share (with mild growth) in local


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market, it is also predicted that its growth momentum in the export market will remain strong for

the years to come.

Its dividend record:

20085.0 sen.

20094.0 sen.

20106.0 sen.

20114.0 sen.

Based on the current share price of RM0.52, the average DY is about 10%. It is believe that

this dividend rate will be maintained in the coming years and at the same time receiving a high

dividend.

5.4 PRODUCTION OR OPERATION

Organization believes that Power Root deserve a long-term development and operates

with the objective to produce high quality products that exceed customers' expectations, which

will subsequently improving the quality of its customers lifestyle.Power Root plans to

continuously expand its product in the international markets and ultimately, to make its brand

Power Root" a household name globally.

In Chain Analysis (VCA)Power Root develops, manufacture and distribute various food

and beverage products such as coffee, tea and herbal energy drinks fortified with two main

rainforest herbs i.e. Tongkat Ali and Kacip Fatimah. Coffee, Energy drinks, Chocolate and

Tea account for 77%, 12%, 5% and 5% of its total sales respectively (9MFY13) under the brand

names of Ali Caf, Perl Caf, Oligo Caf, Power Root, Perl Ali Tea and the Ah Huat White

Coffee.

TUesday, 19 February 2013


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Power Root - Exports to drive growth

INVESTMENT MERIT- Stellar share price performance.At yesterdays closing price of RM1.23, Power Root has gained40.0% (including 3.0 sen dividend) since our Trading Buy recommendation dated 14

th of Aug 2012. In

fact, the share price has also outperformed the benchmark FBMKLCI by a strong 41.5ppt as the latter lost

1.5% (1,646.32 to 1,620.93) over the same period.

- Results review.During the 6-month time frame, Power Root has twice beaten our earnings projections.Recently, the group recorded a 116.7% YoY surge in its 9M13 net profit (from RM11.7m in 9M12 toRM25.4m in 9M13). This was due to: 1) an increase in the local and export sales of the groups FMCGbusiness and 2) A c.RM3.4m (RM2.1m in 2Q13 and RM1.3m in 3Q13) one-off gain on the disposal ofproperties. Excluding the exceptional gain, the net profit still came in ahead of our revised FY13 full-yearearnings projection of RM26.9m.

- Exports to drive growth! Power Roots export sales have been particularly impressive. The groupsexport sales have grown from just RM1.7m in FY06 to RM65.2m in 9M13 with the Middle East andAfrican regions making up most of the exports revenue (about 87% ). As we look toward FY14,management aims to grow the full-year contribution from this segment to RM130m. We also expect a

significant scope for further growth here and in other countries as well going forward.

- Raising earnings projections. We are raising our FY13-FY14 projections from RM26.9m-RM31.1m toRM32.9m-RM36.5m. We are also maintaining our targeted 12.0x PER valuation on the stock. Based on arevised CY13 PER of 12.0x, we value the stock at RM1.44. The new target price implies a still decentupside of 17.0% and as such, we continue to recommend a Trading Buy call on the stock.


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6.0 STRATEGIC FACTORS ANALYSIS

6.1 SWOT ANALYSIS

STRENGTHS

1. Export to drive growth

2. Financial Position

3. Good Reputation

4. Retail Department

5. Strong R & D

6. Strong market demand locally

7. New formulations development.

8. High quality product

9. Market leader in herba energy

drinks

WEAKNESSES

1. New product launches

2. Low customer retention

3. Brand perception

4. Packaging sizes

OPPORTUNITIES

1. Market Demand

2. Product Development, R&D

3. New Product,New Customer

4. Globalizaton (Import,Export)

THREATS

1. Strong Competitor in Industry

2. Low barrier

3. Economic condition (currency)


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6.2 TOWS MATRIX

Strengths

1. Export to drive growth

2. Financial Position

3. Good Reputation

4. Retail Department

5. Strong R & D

6. Strong market demand

locally

7. New formulations

development.

8. High quality product

9. Market leader in herba

energy drinks

Weakness

1. New productlaunches

2. Low customer

retention

3. Brand perception

4. Packaging sizes

Opportunities

1. Market Demand

2. Product Development,

R&D

3. New Product,New

Customer

4. Globalizaton

(Import,Export)

S,O

1. Penetration Strategy-

Increase supply to

Middle East (S3,O1)

W,O

1. Focus Strategy

( Mens and

Womens), W3, O1

Threats

1. Strong Competitor in

Industry

2. Low barrier

3. Economic condition

(currency)

S,T

1.Introduce new product

and services through

Product development

Strategy (Kacip

Fatimah for womens

W,T

1. Diversificationstrategy


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and oligo for

childrens.) (S2, S5, T1)

6.3 RATIO ANALYSIS

Financial year ended 28/29 February

2010 2011 2012

Sales 153,107,212 184,823,929 217,036,013

Profit Before Taxation 12,982,413 14,821,183 19,372,529

Profit After Taxation 10,180,720 12,213,989 16,689,283

Total Assets 225,358,290 219,964,782 232,545,876

Earnings Per Share (Sen) 3.39 4.07 5.44

Shareholderss Equity 191,870,492 180,096,947 184,904,480

Calculation

2010 2011 2012


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Calculation

2010 2011 2012

Return on Assets (ROA) 0.0452 0.5553 0.0718

Return on Equity (ROE) 0.0531 0.0679 0.0903

Return on Sales (ROS) 0.0848 0.0802 0.0893

Earnings Per Share (EPS) (Sen) 3.39 4.07 5.44

Calculation

2011 2012

Current Ratio

Current Assets

Current Liabilities

132,440,583

35,553,379

=3.7251

Current Assets

Current Liabilities

149,941,472

43,864,383

=3.4183


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Quick Ratio

Current Assets - Inventory

Current Liabilities

132,440,583-24,180,889

35,553,379

=3.0449

Current Assets - Inventory

Current Liabilities

149,941,472-33,197,405

43,864,383

=2.6615

Debt Ratio

Total Debt

Total Assets

39,867,835

219,964,782

=0.1812

Total Debt

Total Assets

47,641,396

232,545,876

=0.2049

Debt Equity

Ratio

Total Debt

Total Equity

39,867,835

180,096,947

=0.2214

Total Debt

Total Equity

47,641,396

184,904,480

=0.2577


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Calculation

2011 2012

Current Ratio 3.7251 3.4183

Quick Ratio 3.0449 2.6615

Debt Ratio 0.1812 0.2049

Debt Equity Ratio 0.2214 0.2577


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7.0 ALTERNATIVE STRATEGIC AND SELECTED STRATEGY

Power Root can apply diversification strategies to expand the firm operations by adding

products, services, or stages of production to the existing business. The purpose of diversificationis to allow the company to enter lines of business that are different fromcurrent operations.

Power Root is currently depending on herbal drinks compare to HPA Industries Sdn Bhd and

Orang Kampung Holdings (M) Sdn Bhd. HPA Industries Sdn Bhd is one example of a diversify

company in Malaysia. More than 300 types of products issued by the HPA are made up of health

products (herbs), daily use, food & beverage, cosmetic, Umrah & Hajj services, and others.

When a company is operating on more than one product, it still can continue to be

resilientbecause of the profit are gained from various sources and are not dependent to one

product only.

Power Root should apply diversification strategy. The organization can offer variety of

services or products to acquire more customers. It is recommended to Power Root to involve into

multimarket to gain more profit. Instead of only producing health product, Power Root also can

produce cosmetic, supplement or indulge in the hotel industry to seek market growth. Besides, to

make Power Root a competitive organization, they need to earn sales in greater volumes and

capture wider market. Hence, Power Root should consider to apply this strategy with sales of

variety of products and to ensure it can establish a successful firm to seek growth in present and

future.


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8.0 IMPLEMENTATION OF STRATEGY

As discussed, diversification strategy is one of the strategies that are observed to complement

towards the needs of the organization. As of now, the organization has not implemented the

strategy as it requires a huge amount of capital where preparations towards its implementation

are to be greatly prepared in order for it to succeed. Yet, the strategy said will undeniably

become the solution for the organization if its mission is to expand more.

As known, Power Root has successfully indulged themselves in the energy drinks and also the

caffeine industry and from there, built their empire. The goodwill of Power Root itself is

considered to be one of the leading companies in the energy drinks with almost thirty three

countries being penetrated. This indicates that the company is doing well within its field. Yet, as

the company has already matured in their line of production and sales, it is wiser still to not

remain stagnant. Diversifications of productions can be the only solution to burst themselves

from stagnation hence penetrating new market segments.

Diversification itself can cause harm rather than good if not handled cautiously. As in the case of

Power Root, this is so as it can tarnish their goodwill in producing energy drinks, where, it took

more than a decade to build. For example, consumers would have forgotten the companys core

products because the diversification, hence giving opportunities for new rival to grow. This has

been so with many companies who have failed in implementing the diversification strategy

hence condemning themselves to their doom.

As such, where the risk is high, the repayment would also be paralleled. For Power Root, this

strategy can be use, and only by doing wisely, to garner profits and recover from stagnation with

a booming sale. Wisely, as Power Root is famously known for its energy drinks, it is advisable to

diverse in products still lining with its core to minimize the risk, which means doing a related

diversification. In this, diversification of Power Root could include the food industry and also

medicine industry.


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By including and expanding in both these industries, Power Root can better manage the

diversification by building and exploring new markets and also simultaneously securing Power

Roots goodwill and also preventing it from being tarnished. This is so because both of the

industries are highly related to their core products.

Moreover, Power Root should also diverse towards the service sector while maintaining in its

line. As its core product promotes sexual energy towards its consumers, sexual energy is also

known to be passed by traditional method, which is by massaging. By indulging themselves in

the service sector, more profits can be made. this is because, service is one of the most profitable

industry in the world and being part of it will boast the companys stature.

Food, medicine and service industry are excellent choices for diversification for Power Root,

yet, research and development should be fortified before going through the changes. This can be

done easily as all of these diversifications are within the core of the company. As the newly

explore market contains many rivalry companies, Power Root should observe the strength,

weakness of the potential competitors and also anticipate the future and present opportunities and

threats that has and could arise. Thereafter, Power Root should benchmark the strength of the

potential competitors, using their weakness, grabbing the opportunities, and overcoming the

threats.

Managing so, the company could further their advancement towards these diverse market with a

high percent of success. In conclusion, it is recommended that the organization should ensure

that there is full usage of the available human resource and other resources as well as ensuring

that the organization fully complies with the government regulations for it to successfully realize

the intended results of the diversification strategies.


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9.0 STRATEGY APPRAISAL AND CONTROL

Control and appraisal of the diversification strategy is a must before and after the strategy is

implemented. This is to ensure that the strategy used is the right strategy and is beneficial rather

than costing for the company.

As such, in the case of Power Root using related diversification strategy in the future, it must be

appraise to level its need of implementing and control as to the strategy does not goes astray

from the companys objective, mission and vision.

In this, it is practical in using the Porters Three Essential Test which includes:

The attractiveness test

As diversification strategy branches from the core business, it is advisable that before diverging

into other areas of business, related or unrelated, the attractiveness of the field should be studied

and appraised to a standard. If it is to proceed, the new market should be enhancing enough to

pass the standard and expected to bring returns. Hence, the target consumers should be attractive

enough to fill the demand.

As in the case of Power Root, the service industry and also the food and medicine industry

should be appraised as interesting in order for the diversification to succeed.

The cost of entry test

However diverged a company is, it must not exceed its core business and use up all its capital in

diverging. This is because, other businesses are on diversification field from its core, and

entering those businesses must not be by sacrificing another, moreover, the core. In this, a

company must ensure that the cost of entering a business does not capitalize all future cost.

As Power Root will expand much of its capital in the diversification, measurement as to the cost

of entering must be calculated and appraise towards the ability of the company to further its other

businesses, mainly the core.


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The better-off test

This is mainly an appraisal towards the synergies created from the diversified business and its

core, assuming it is a related diversification. As of interest, the diversification must be of the

same research and development where, when the core is developed, the diversified can also

benefit from it and vice versa.

discussing on the Power Root diversification which are related, it is the perfect test as the

branches that is ideally to diversified are mostly interconnected to the core where, as the core

business, any improvement from the core could benefit the others. Hence, in order for the

strategy to be implemented, the connection and synergies created between the core business and

its diversified must be at a certain level satisfying.


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10.0 CONCLUSION

Throughout the discussion, it is founded that Power Root has proved that they can manage their

internal and external forces with distinction. Yet, as a grown organization, with a strongly

developed goodwill, Power Root should indulge themselves in other strategies to enlarge their

market share and also venturing into a wider market perspective. The discussion has led to a

proposition as to Power Root future strategies in meeting their mission and vision which is by

relatedly diversifying their product to meet the markets and organizational needs.

.


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11.0 REFERENCES

Power Root Sdn Bhd: Annual Report 2010. (2010, June 30). Retrieved November 1, 2013, from

Bursa Malaysia: http://www.bursamalaysia.com/





Kiasutrader. (2013, February 19). Power Root-Exports to drive growth. Retrieved November 4,

2013, from http://klse.i3investor.com/blogs/journeytowealth88/24952.jsp

Mwangi, S.M. (2010). Implementationof diversification strategy at the Standard Group (K)

Limited University of Nairobi. Retrieved November 11, 2013, from

http://erepository.uonbi.ac.ke/handle/123456789/5653

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