2003/2004 1“year Business English Course Handout #2 Marketing Accounting Corporate aliances Lecturers: V. Krnajski HrSak N. Liszt V. Spiljak A. KnezoviéMarket IngUNIT ONE 2 Global Marketing < OQ Logo Image Oe but what makes a successful logo - one which will be instantly recognized all over the world? Look at the well-known logos on this page. To what do J IAG U. A R yougthink they owe their special appeal and 6 ae re Hngll iol i In memorabilicy? VOiLvo e simplicity Olivet eee ‘¢ geometric shape eA @ style of lettering ¢ non-verbal impact MicI Hlow visually memorable are logos? For example, can you remember what colour the ones on this page ate? What does your own company's logo loak like? How does a powerful logo help to build up the image of a product or service in the mind of the customer? ‘What is ‘global image’? What do you understand by the term ‘the globalization of markets’? Compare your ideas with those expressed in the asticle, Going GlobalGOING GLOBAL Are we at the mercy of the global advertisers? This article explores some of the issues facing each one of us every day wherever we live. Perhaps the biggest challenge now facing the international advertising industry is that of ‘establishing ‘wotld brands’ by appealing ta the global consumer in all of us. For whilst. thece will always be national and niche markets which require specific marketing strategies, global operations call for global campaigns. Professor Theodore Levitt of Harvard Business School first put forward the theory of ‘the But the idea thet there are more similarities between cultures globalization of markets’ than differences goes back to the popular image of the ‘global village’ The best in the business it was Coca-Cola who told us in the 70s that ‘they'd like to buy the world a Coke’ and British Airways who announced in the 60s that they were "the world's favoutite airline’. Their ized TV and cinema invented the global advertising genre and the agencies who universally recog advertisements created their award-winning commercials are Xoday widely regarded as the best In the business. Simple messages The very first global commercial Saatchi & Saatchi ran for BA featured Manhattan Island being flown across the: Atlantic. As. their in-Might magazine put it, “the effect was breathtaking; words were hardly needed; the pictures said it all”. The commercial was screened in 29 countries and caused @ sensation in the industry. Since then, ‘the world's favourte airline’ has become a part of the language, recognized the world over. The secret, according to BA, is that the messege is ightforward, easily understood and vividly expressed stiThe biggest brands In fact, only a handful of worldwide agency networks have the capacity to take on the world’s biggest brands. MeCann-Erikson, who have handled amongst others Coca-Cola. Esso and Kodak, came up with ‘the Martini moment’. Leo Burnett gave us the Seven-Up_ slogan ‘it's coot to be clear’ and, perhaps most famously of all, the Maclboro cowboy - a theme which has been running for aver forty years. Minimalist approach So what is it that makes global advertising so compelling and memorable? The answer 10 that lies partly in reducing the message to an absolute minimum. A lot of adverts pack in too much and end up obscuring their message. The. global commercial gets its message across succinctly. with great impact and an emotional intensity which belongs to the universal languages of pictures and music. The commercials reinforce the brand-image independently of any real consideration of the product. And image outsells product every time, Costs the earth The beauty of a good global ad is that it can be used to great effect over a period of many years and still seem fresh. Global image making, however. is 3 lengthy end costly business. Bringing together the best creative lalent in the advertising industry usually ends Lup costing the earth, And critics of global ads point out that for the majority of brands global advertising js seldom the answer, Though the world is getting smaller by the day, few companies, even multinationals, have true global status and since most ‘mass-marketed" products actually sell to fewer than five per cent of the masses, it doesn't always pay to think big Crosschecking Which of the following viewpoints support the ‘opiaions expressed in the article? 1. Olpbal advertising is just a current trend. 2, Global ads are generally believed to be superior to other commercials. 3. IF global advertising became more widespread, only the top chree or four agencies would be left in business. 4. Showing the same commercial in several countries cuts down production costs and saves time. 5. A global advertising policy usually leads to extremely bland commercials 6. Good global ads often rely on thei non- verbal impact 7. Global commercials have more mileage. 8. Mass marketing is actually a contradiction in corms. Find the Expressions Look back at the last three paragraphs in the article. Find the expressions which me 1. avery small number with excellent resules coms @ fortune | nor always a good idea to do things on a large scale Read the text again. Find: 5. three words you want 10 use more often 6. three word partnerships you need, with their equivalents in your own language. 2 theee longer expreisions, with their equivalents in your own language.4 LANGUAGE FOCUS Word Partnerships 1 The following verbs both form strong word partnerships wich the word commercial Find four more in the article you have just read. What is the difference between a commercial and an advertisement? Word Partnerships 2 Alll the nouns in each list below form strong word parenerships with the words on the left, bur three nouns are in the wrong list. Which Shree? Which lise should they be in? Discuss Is there a TV commercial at che momene that ‘you particularly like or dislike? Is there really any evidence chat adverts have the slightest effect on consumer buying behaviour? Has an advertisement ever persuaded you to buy? cr put you off buying a particular product? Word Partnerships 3 Now complete the three paragraphs below using the wards from the following list: segmentation expenditure mix slogans costs shown run drive. agencies trends campaign produce leaders “The toral marketing (1) EXP EADTULE, ineludes service or product range, pricing yA policy, promotional methods and distibétion channels, but for ‘world brands’ whe af to be market (2). LEADERS. | a by marketing (3). PX goes on television advertising. When global companies organize a marketing (4). D@\YE.., a concerted effort is made to promote and sell more of their products and this will ‘often involve an expensive advertising (5) CANPALG AJ Marketers generally tend to divide markets up inwa separate groups according to geographical area, income bracket and so on. This is known as marker (6) SEGMEAITAIONBut 2 global marketing policy will obviously take much less account of focal market (7) TEEUDS . and concencrate instead on what different markers have in common, As glcbal commercials are (8) S100 on TV in many different councres, the advertising (9) . COSTS... cend co be high and obviously only the biggest advertising QO)ASEAKAES, can (11). FROMUCE commercials on such a global scale. Forcunately,glabat commercials like chose for Marlboro cigarettes and BA cart be (12)... BUA. > for many years without looking out of date, and advertising (13) SLOGANS,, such as “the word's favourite airline" and “Coke is it", will always be universally recognized. Underline al the word partnerships you can find in che paragrapins above.SSE FOCUS Word Partnerships 5 . Cross out the one word in each sencence which does not fit. Sone of the words appeared in the article. Leis reasonably / faitly / quite./ highly ceovelfecive strategy 2 ie is | widely f universally / generally regarded as the best TV commercial ever. 3. Ie is a(n) well / Javishly / superbly / exceptionally produced commercial 4. The message is powerfully {_bighly / clearly / vividly expressed. Funny Business Whar eight-lester word will complete ali che following expressions? Two of chem appeared in the article. Which of the above expressions refers to: 1. something expensive? 3. something uncerrain or dangerous? TT PAL erat ieee 4 something eel? Boy 5. something tha ees long eps i tenes Discuss Do you know of anyching in business which was, slightly cisky, or even shady? Have you ever been approached to do something in business which you felt was cot acceptable? Word Grammar One way of forming verbs meaning to make like this is to add -ize (or -ise) co che end of the noun or adjective. You can make a lot of verbs in this way from words you probably already know. Complete the following. The first one has been done for you as an example. 1. comake your activities more global > pbbalie 1. co make your activities more international > Angie stPan abide, 3. comake a private company national DANONE 4. co make a national company private rN ze: 5. co make something more sensational bo Sees aM one liae 6. comake something more standard > 1... Praedereee, . 7. comake something more popular yo Papel erire 8 cobe (Cop) iaclleceul about something > inte ch: 9. co put something inzo a category CRE RBA... 10. to introduce computers di. Caney he. 11. tomake sopeshing lea 12, co make ¥{to0) general statement » - 13. to make something mare commercial > oe Gert alire \4 to make something more modern > Meet 15. to put something on television yo RCLevise If you come across other business words which ~ follow this pattern, add chem here.rana Wars Coke versus Pepsi; Nike versus Reebok; Nintendo versus Sega « the battle is on amongst the world’s top brands. Aggeessive comparative advertising has now reached fever pitch; extra millions are pouring into R&D, and the market feaders are under Constant pressure t0 slash their prices in a cut- thoat struggle for market domination. When Philip Morris knocked 40c off a packet of Marlboro, $47-and-a-half billion was instantly wiped off the market value of America’s top twenty cigaretle manufacturers. Lesser brands ‘went to the wall. And that’s just one example of how fair competition within a fee market has rapidly escalated into all-out brant wae. |, Ovn-Label Products #NXet, in spite of the efforts “of the corporate fa thing 6 hea e ichalleigéable: Nescaté surtds Kellogg's “are ualivilésing. as theitahigher price is'no ger auto with’ higher “and the States own:labels now, account er 55% of total sales.:Their tumover-has, been higher. ee ourse, the big brands are not gi uta fight. When British supermarket chain, bury’s, led the attack on Coke by launching n similarly packaged product, it managed to respond. Sainsbury's was told to change its packaging fast or Coke would cut its prices to supermarkets and “leave Sainsbury's lessly overpriced. Some people say theFor brand names are still the reason Omega can put a 300% mark-up on their watches, the reason Nestlé spent a fortune buying Perrier, the reason investors are prepared 10 pay up to twelve times the book value for a company’s stock. Big brands remain big business in the City. Brandstretching Brandsivtching 1 another way in which the household names are fighting back, By putting. their familiar trademark on attractive and fashionable new products, companies can both generate additional revenue and increase brand- awareness, hence Pepsi Maxwear, Camel watches and even jewellery by Cadbury! The high-life image suits companies like Philip Morris, for whom, as the restrictions on tobacco ads get tougher, brandstretching is the perfect form of subliminal advertising Caveat Emptor! So much for the high-street brands. Further upmarket, the luxury branded goods manufacturers are facing an even greater enemy of their own, namely, the pirate brands. And as the trade in lookalike products increases, companies like Ray-Ban and Reebok, Yves Saint Laurent and Armani are calling for a crackdown Con the pirates, who in 1994 robbed firms of more than $10 billion in retail sales. For a fraction of the recommended retail price you can pick up fake Gucci, fake Lacoste, fake Lego, fake Disney, fake Nintendo, fake anything. But buyer beware! Your case of Moet et Chandon will probably turn ut to be cider and your bottle of Calvin Klein more like industrial cleaner than perfume. Market saturation But, brand wars aside, the single higgest threat to the market remains saturation. For it seems there are just too many products on the shelves. {n the States they call thie ‘product clutter’ and it is currently the cause of a strong anti-consumerism movement. In fact, product proliferation and widespread me-tooism mean that some Boots stores actually stock 75 different kinds of toothbrush and 240 types of shampoo. It would take you over 20 years to try them all, assuming vou even wanted ta! And that’s just got to be ceaay when you tinal 80s Yeti OF NeW! brands fail within thew tist six moni,LANGUAGE FOCUS Word Partnerships 1 Match each of the words in che first column with a word from the second column to make twelve word partnerships from the article. There are some altemative parznerships, but there is only one way to match all twelve. 1. aggressive a. names 2. household 'b. products 3. me advertising 4. lookalike d. cooism 5. retail goods 6. supermarket marker 7. branded chain 8 free h. sales 9. subliminal i consumérism 10. anti- retail price 1. fair _.. & advertising 12. recomiiended | “i.” Zompetition * Discuss Is your-company a household name? To sihat extent do your company’s products fr services rely on your name? “Até they upmarket or downmarket? How do you differentiate them from those of your competitors? Word Partnerships 2 The following ‘nouns form strong word partnerships with the word market. Find five more in the article you have just read. forces penetration MARKET ... Word Partnerships 3 The following nouns form strong word partnerships with the word brand. Find three more in the article you have just read. manager BRAND Discuss A common criticism of target-marketing is that there are just too many identical products crowding the marketplace. Do you agree? Does your company have a problem with product proliferation? Word Partnerships 4 Which 8-lewer word can come before all che following words? goods: research protection profile advertising ~ durables non-durables Now match these word partnerships with the following definitions: 1. commercials aimed at the end-user 2. goods used shortly after purchase such as food, newspapers etc. 3. products purchased by a member of the public 4. goods which last a long time such as cars, televisions etc. 5. laws to defend buyers against unfair trading 6. market study of buyer behaviour patterns 7. description of a typical buyer according to age, sex, social status etc.Sales Techniques Jough talk or soft soap? Everybody everywhere: every. day is selling something. Sometimes it’s a product. Sometimes it’s a sei Sometimes it’s an idea. Sometimes it’s just themselves. we Pu the following advice on selling into what you consider to be its ordef of importance. a. Minimize the mmer's Chances to say ‘no’. Follow up as many leads as possible Secure as many sales appointments as possible. ‘Fistn w the customer. Bon’ take ‘no’ for an answer. Keep smiling! 't waste time on people who aren't voiny fe buy Th Don’e give che customer tor mach cine eo think i. Aske questions cat force the customer to sty "yes i. Spend time with the customer b « a € £ B Discuss How would you describe your own atitule as a buyer receptive, sceptical, resistant, hestile? % When was the list time a salesperson tried to sell you ® something! Did you bay ic? Work in wo groups, One group should veal The Sofi Sel The other shouhl eeael-The Hal Sell BThe Soft Sell “First the bad news. Selling doesn’t work. Selling doesn’t work because buyers dion’t like people selling things to them and all your so-called sales tactics just turn buyers off. Let me ask you something. Did you ever learn the hundred best ways to close a sale? And do they work? Of course, they don't. Do you know why? Because it’s all garbage, that’s wh “Are you the kind of person who won't take ‘no’ for an answer? So how come you keep getting ‘no! for an answer? Has it ever struck you that you could be doing something wrong? What if you really cant persuade people to do things they don’t want to? And did it ever cross your mind that the customer may not actually need your product? Hard to accept, | know, but it's a possibility “Now the good news. Forget conventional wisdom. It’s not your job to get people to buy but to find out if there's a basis for doing business. Manage the demand that’s there. That's all you have to do. “| know what you're thinking. You're thinking, hell, if| did that, I'd never sell anything. But that’s just where you're wrong. If they say ‘no’, accept ‘no’. You're wasting time making contacts with people who aren't ready to buy. You don’t need to pitch for business. Stop selling and stan listening. “It was Eric Berne who said: ‘Everyone in the world just wants to be listened to, but they seldom get what they want because so does everyone else’. I can see some of you know what I’m talking about. Well, so you should, because some of the worst listeners | know work in sales. Try shutting up for a change. “Listen to everything the customer says. Give them every opportunity to disqualify themselves.as a serious prospect. And since that's all you're trying, to establish, it needn't be a blow to your ego to be told ‘no’. If they say ‘n don’t argue with them. Nobody ever won an argument with a customer. “Don't make extravagant claims for your product. And listen when the customer asks questions - even silly questions. People ask silly questions for a reason. Remember, the decision to buy is the buyer's responsibility, not yours “| know it sounds obvious, but honesty sells. These days people take a little longer to make buying decisions. Let them. Quick deals fall through and buyers prefer to do business with people who are prepared to spend time with them, inform them, and then leave them alone. You see, you can’t actually make people buy anything. But if they want to buy, what you car clo is make them want to buy from you. “So what it comes down to in the end is trust. Let's face it, it’s natural for the customer to be sceptical. Selling always causes customer resistance. It's a fact of life. But if selling causes customer resistance, no selling equals no resistance. And you make more sales when you stop trying to sell.”The Hard Sell “These days nobody talks about selling any more. Selling’s out - too pushy, too aggressive, (00 80s. Do you know what they talk about now? They talk about ‘demand management’. Can you believe it? Weil, { don’t want a bunch of demand managers working for me, thank you very much, {want people who can sell "You know, contrary to popular opinion, selling is not a dirty word. Selling is what business is seally about - creating and stimulating demand. Nobody - and I mean nobody - would ever buy anything if somebody elge didn’t go out, and sell it to them. And that’s as true now as i's ever been. “You see, people cannot make buying decisions. Not by themselves, they can't, The miaute they have ta say Yes, they panic. {call this the ‘parachute principle’. They’re up there looking out of the aeroplane and they can’t jump. ‘They panic. Now, there's only one thing you can do if they won't jump - push them. “Get on the phone and sell. The telephone is an instrument of power if you know how to use it. Lesson one is: you can't sel sitting down. No-one can. Selling’s dynamic, Get up. Get a phone that lets you move around, Being mobile helps you fo be alert, sound confident and project energy. It improves your performance, You sell more on the move. It's as simple as that. “Lesson two: don’t be afraid of rejection. if one call in ten gets a Yes, then a negative response is just one more No out of the way. Nine No’s equal Yes So No’s are OK. No’s are wonderful. “Lesson three: are you sure the customer means No? As any good salesperson will tell you, No is really just an invitation to keep talking. No hardly ever means No. No can mean Not quite. No can mean Not yet. No can even mean Not if can help it, That's fine. What would it take to get you 10 say Yes? “Lessan fauc: never invite your buyer to think the matter over. W's been statistically proven that if you have to make a second appointment, you've actually halved your chance of making the sale. “You know, sometimes 4 talk to salespeople and it's almost as if they're ‘embarrassed about closing a sale. Now I hate to say it, but closing’s kind of important. Because if you're not closing, you're not selling. If the customer says (can't, say What's stopping yau? they say {/m really not happy about so-and-so, Say So, if | could find a way to change so-and-so, you'd be more interested, right? in some ways selling’s just a lest of endurance and most people can only hold out for so long. Believe me, they will say Yes eventually, but will you still be hanging in there when they do? “Don't sit around waiting for the buyer to come to you, Make that cold call Na matter what the management gurus may say, selling is not social work It’s psychological warfare. It’s not about helping. It’s about winning. And don't et anybotly tell you otherwise. I have a favourite saying: Things ntay come t0 those who wait, but only what was left behind by those who didn't"i LANGUAGE FOCUS Discuss "Customers are not interested in buying products. They have negds, that have to be satisfied.” Do you agree? How would you describe your own product / service in terms of consumer benefits? Word Partnerships 3 aa What 8-lecter word will form strong word partnerships with all che preceding adjectives? final major hasty clear-cut snap last-minute crucial unanimous right Now complete the sentences below using some of the words above plus the (allowing verbs: make take reverse reconsider reach come to 1. Evenafteraseven-hour meeting they were still unable to... a 2. Icwasa fairly...... Everyone knew what the options were. 3. Now. seeeee seeam bese. e cre. until everyone is present. On such an imporcant issue, i€ must be, 4. The Managing Director va jor of We never know what she’ going f0 decide next 5. Al. are important, but this one ie absolutely 6. Pmafraid your toclose dowa the plant is unacceptable. We'll give you VO days to 7. ewas abicofa We dide’t make up our minds until yesterday, bur at lease we are sure we have made the . 8. fe was an unpopular“... «but they refused (0 6... 60.62. it Word Partnerships 4 What G-letter noun will form strong word partnerships with all these verbs? Some of them appeared in the presentations manage meet satisfy create gauge boose scimulace Now complete the following using some of che word partnerships above 1. When you ...6..0..+. oF tH 7 +4 you increase it. 2. When you were OF , you are able to supply all gout custome: needs. 3. When you tees 1 you estimate what it is. 4. When you existing + » there's no need co go out and sell. Discuss Think of your local supermarket - whac marketing strategies does i€ use for promating sales of fod and dink tems? # Buy chree, gee one free © Special promotional price (Until 28 angst) © Regular Saver Line (an item always cheaper than in other supermarkets) * A voucher giving you £1 off your next purchase of the product © A free toy with a Three-Pack © Oversized packers: 10% extia for the same pice Do the same sort of marketing strategies apply 20 other indusisial products? What about the products your company makes? Can service industries use similar marketing strategics! If so, how! (not, what are che best strategies for marketing a service?LANGUAGE FOCUS Business Grarmmar Prepare a set of questions which a client or a customer might ask you about your products or services. Use the question starters below to help you ‘When you are seady, work in pairs to ask each other che questions you have prepared. L. How do / does your interms of....? compare with 2. What do you see as the main advantages of your... 3. How flexible are you on -...? 4. Could we rely on you to. 5. How quickly could you .. 6. What immediate / long-term benefits could we expect ....? 7. What sort of terms can you offer....? 8 What assurances can you give us hat... 9 Can you guarantee us... ? 10. Would you be able to 11. If we wanted tort would i be possible 12, Supposing we said... , would you be in a position t0...-? Quotes The same word completes all these quotations about business. LAL -_ is the most important person in this business, either in person ot con the phone. «is not dependent on us: ‘we ate dependent on them. ROA is not an interruption of ‘our work. They are the purpose of it. 4A + makes pay-day possible. 5. Nobody ever won an argument wich a Do you agree? Can you think of any other words you could put in? Any funny ones? Discuss ‘Ate you the kind of petson who makes snap decisions or do you tend to take your time coming to a final decision abour things? What part does decision-making play in your own work? Have you ever had te make a major decision which turned out co be roo hasty? Presentations 1 ‘The following fixed expeessions were used in the sales presentations. Can you re-atrange them? “Theefist word is in the right place. Le fact life of 2 2°" Can believe you itt 3. {t's simple as as thac 4. Let me you something ask 5. 1 know thinking you'te what 6 But weong just thee’s you're where 7. And as now that’s true ever as been is, 8 And don't otherwise you tell anybody les. 9. 1 talking see know some can you of Vm about what Which of the above expressions are used: a. coemphasize a poine? b. co involve the audience? igMarket Metaphors Many of the verbs and some nouns and adjectives commonly used to talk about markets and marketing are, in fact, metaphors. For example, a product can he launched ~ like a ship; or it can die like a person. EXERCISE 1 This exercise gives the literal meanings of the following words. Can you match them? collapse prune target launch saturate flood skim dry up penetrate blitz shrink push 1 send a rocket into space or a new ship into water for the first ime 2. ‘aim at something — when shooting at something 3 remove something from the surface of something ~ cream from milk 4 {g0 into something ~ a bullet into a body 5 cover with water — when a river bursts its banks 6. move something away from you faerie drop a lot of bombs on one area 8. ........ when some soft substance is full of water so that it cannot absarb any more 9.22... fall down suddenly ~ a building during an earthquake 10. when something gets smaller — clothes when they are washed tie when all the liquid in something disappears — pethaps because of too much heat 12. when you cut branches off a tree so that ic will grow better in the future EXERCISE 2 Now use the correct form of the words above, in the same order, to complete the text below. We (1) ql . the product two years ago, after doing a lot of research and testing. We were (2)... young people, the 18s to 25s, but a lor of older people bought it too. Since this was a new product, and we were the first company to produce it in Britain, the finance people, as always, wanted to charge a high price and (3) ..........the market. But we argued with them and finally gor our way. We charged a low price hoping to (4) ..........the market. Unfortunately, it tured out that one of our competitors was also making the same product in Taiwan, and soon the marker was (5) with even cheaper imports. So we decided we really had to (6) our “British made” version. We spent about half a million on an advertising (7) .--- +--+. + Sales did go up for a while, but now they're falling. Maybe the market is nearly (8) We don’t expect it to (9) ...-...-.., but it does seem to be (10) as young people switch to other sports. Yer the market for our expensive top-of-the- range mealels has almost (11) +80 it's probably time we (12) ........--our product line.ia Kecountin g ‘T seit. that, fo the best of my knowledge (which és pretty poor and may be revised in future), my company’s accounts are (more or less) accurate. L have checked this with my audilors and directors who (1 pay le) agree with me...aE Bookkeeping EXERCISE 1 Complete the text using these words: credits debits ‘double-entry invoice journats ledger posted receipt transactions transferred trial balance vouchers k sale that a business makes, in che order that they cake place, in (1). , these temporary records are entered in or (2)... ... o the relevant account book or (3) . ~ + Of course the “books” these days are likely co be computer files. At the end of an accounting period, all rhe relevant totals are (4) «to the profit and loss account. (5)....-...... bookkeeping cecords the dual effect of every transaction — a value both received and parted with, Payments made or (6)......-- are entered on the feft- ‘hand (debtor) side of an account, ahd payments received or (7)........--. on the right-hand side. Bookkeepers will periodically do a (8) ++ +++. to test whether both sides of an account book match. In most business (9) . . » the seller of goods or services sends che buyer a bill or (0)... + and later a (11) acknowledging payment. Businesses are obliged to retain the documents ~ known as (12). .......... = that support or prove an icem in an account, and make chem available to the intemal and extemal auditors who check the accounts. Bookkeepers are nat to be confused with librarians, who also keep books, or with bookmakers, who “make books” in the sense that they accept bets (on horse races, etc.) and traditionally wrote them down ina book like a bookkeeper’s journal. Accountants, unlike bookkeepers, analyse financial records, and decide how. to present them. EXERCISE 2 ‘Add appropriate verbs from the text above to these sentences: 1. Bookkeepers .......-+. business transactions. 2. A debit is @ payment -........26 + 3. A credit isa payment... -.2.. 4. Debits are........--. on the left-hand side. 5. At the bottom of the page, bookkeepers.......... the totals. 6 Companies have to-.+........ invoices and receipts 2. The auditors... the accounts. 8. Accountants, managers and sharcholders............ the accounts.Accounting ‘Match the remacks an the left Does cha mean you spend your time weiting down credits and debits, and adding up columns of figures all day? Can't be very exciting You'te an accouncane? ‘So what do accountants do? You mean the shareholders? ‘So you prepare reports for managers? And the cost of the accounts department! You mean what they do in the front of shops? Ab, now that's interesting... Not at all. Asa macter of fact, I'm a tax inspector. a the responses on the right: Hal Now you're going to ask me to tell you how you can pay less tas: No, manageriai accountarits do, but I Wark in cose accounting. We have co work out the real cost of each item the company makes, which means finding a way to allocate all che overheads to different products No, not only. Managers always need the help of accountants. They need financial statements, and budgets, and cash-flow projections, and so ‘on, co measure the success of what they've done, and to make decisions about allocating resources for future projects. Ofcourse. But like I said, we're necessary. Ard useful Haven'e you heard of “window deessing”? ‘Sure, but it’s also another name for what some people call “creative accounting” ~ making @ company’s financial situation Look as good as possible in the balance sheet, and so on. Irs not very legal, but it happens. The accountants in my firm also have lots of wonderful ways of reducing our tex bill That's bookkeeping. Not quite the same thing. Well, accountants do record cash flows, and the value of assets and liabilities, and they calculate profits and losses, and so on. But it's not just weicing down numbers. We're really in the business of supplying people with information 2 3mM Financial reporting Ind id out about: ACCOUNTING, ANNUAL REPORT, ASSETS, AUDITING, BALANCE SHEET, BOOKKEEPING, CASH FLOW STATEMENT, CREDITORS, DEBTORS, LIABILITI LIQUIDITY, LOANS, OVERHEADS , P&L ACCOUNT, REVENUE Lead-ins inancial reporting deals with financial (ransactions that involve money. These transactions can include making payments or expenditure and receiving money or income. Financial transactions are recorded in the accounting system of a business. Each type of transaction will be entered in a record known as an account, Recording financial transactions is important to see how much a business is earning and how much (axes it has to pay. Managers want to know who owes them money (debtors) and to whom they owe money (creditors). Some of the accounting information will be used internally, some for annual statements in limited companies. There are three basic financial statements. palance Shee, Cash flow statement! Which one includes the followi 2) inflow of money and outflow of money (payments in and out) b) assets and liabilities ¢) income and expenditureRead the text below and fill in the summary: The annual report Do you remember shareholders, the owners of limited companies? If you were one of them, you would hardly wait for the Annual General Mceting (AGM), a yearly meeting (0 discuss the Annual Report of the business you invested in. Besides, it's your moncy, it, and you expectresults, ‘When companies announce results for a particular year, they do that in the annual report which presents a company's financial statements to investors, creditors, governmental oversight agencies and the Inland Revenue*, the government department resposible for collecting taxes. Listed companies, the ones that are on the Stock Exchange, are legally obliged to publish their financial accounts and give information about the performance of the company. Accounts show how much money an organisation has earned or spent in a fixed period of time. People who check or examine accounts are called accountants. There is 2 system of recording and auditing business transactions thet is called accoumting Accountants and bookkeepers, the people who work under them, are in charge of running accounts. The activities must be presented under the accounting standards. Large companies engage auditors, specialists outside the company, to check the accounts. Everybody is interested in the last line in an audit, the bottom fine, which shows profit or loss. ‘An annual report consists af several parts. There is the chairman's statement which gives an overview of the company's past performance and its present situation, director's report with principal activities of the business, results and dividends, investment, employment policies etc., report of the auditors to state that the accounts give a «irueard fair viewn of the company's financial performance. The most important part jis the three financial statements: the grofit&loss account, balance shect and cash flow statentent. SUMMARY Parts of the annual report {and the Gaancial statements) “The Intemal RevenueBA the profit & loss accoun, Can you guess the meaning of the following words? 1 revenue a) regular costs (rent, salaries, heat, light etc) 2. gross b) an amount after things have been taken away ___ overheads ¢) reduction in the value of an asset over a period of time 4. net 4) total, without anything taken off 5. wlilities ¢) electricity, gas and water 6 depreciation 1) money received from the sale of goods of services Put the words into thece groups with the same meaning: sales, revenue, retained profit, eamings, tumover, reserves, profit, The profit and loss account (P&L account) or the income statement (US) shows the profit earned and losses made over a period of time. Its purpose is to calculate net profit and to summarise the profitability of the company. It can help a business to make decisions about the future, tax authorities to know how much tax to charge a company on its profits, or banks to give companies financial support, ‘The P&L account gives figures for revenue shown through turnover, the amount of dusiness done during the year, and expenditure, showing costs and overheads. Revenue includes all the money received from selling goods or services. Costs are all the expenditure Overheads or fixed costs include rent, salaries, utilities, insurance etc. Profit is important as a part of it goes to the government in taxation, t0 shareholders as a dividend, and a partis retained by the company for Curther growth, or for bad debts. Remember the equation: Net ProfitPROFIT & LOSS ACCOUNT Read the items in English and find the corresponding expressions in Croatian Sales Uredske zalihe potrasiog materiala Cost of sales Plage i nadnice Gross profit Dobit prije oporezivanja ‘Operating expenses Porez Bad debt charges Bruto dobit Office supplies Zadriana dobit Rent Rastiodi redovitog poslovanja Salaries and wages Prihodi od prodaje Selling and marketing ‘Najamni Deliver ‘Amortizacija dugotrajne imovine Depreciation Prodaja i marketing Total operating expenses Trokkovi prodaje (s ispravkom vrijednosti) Operating profit & Rashod Koji nastaje formiranjem ispravka za sumnjiva i spoma potrazivanja Interest payable Ukupni_trokovi _redovitog poslovanja Exceptional costs Dobit nakon oporezivanja Profit before tax ‘Obveza za obradunate kamaie Taxation Tzvanredni troskovi Profit afier tax Dobit od redovitog paslovania Dividends Dividenda Retained profit Tsporuka Answer the following questions: 1. What do overheads include? 2. What is the difference between profit before and after tax? 3. What is retained profit used for?Read the text and find the words which mean: dionifarski kapital, vjerovnik, duinik, imovina, prekoraéenje tekuéeg raéuma, obveze, potrazivanja The Baiance Sheet is a statement detailing what a company owns, and what it owes, on a particular date, usually the last day of its financial year. It is a «snapshot» of the financial position of a firm and consists of three parts: all the things the business owns (assets), the things the business owes (liabilities) and the shareholders’ capital (equity). It is helpful to remember the «left-right» accounting equation — assets on the left side, liabilities on the right. The balance sheet must balance — that is why it is called a balance sheet. In other words, the assets must equal the claims on assets. The concept of balancing relies on the accounting equation: Assets = Liabilities + Owners’ Equity ‘The equation illustrates that the assets of a company must equal the claims against the company. Those claims arise from both the creditors of the company and the owners of the company. Assets can be fixed, for example buildings, land, and equipment. They are long lasting and are required for the company to make products or provide services. They take more time to convert into cash. Current assets include stock, cash, and money owed by customers, that is, debtors. Current assets are used for day-to-day operations and are very important for the liquidity of the company. Liquidity means that assets can easily be tumed into cash. Liabilities can be long term, like loans, money lent and paid back with interest after at least twelve months. Current liabilities are amounts payable within twelve months, for example to creditors and to suppliers of goods on credit. Current liabilities also include bank overdrafts (when more money is withdrawn from an account than is deposited). Shareholders’ capital consists of two parts. The first part is the money put info the business, received from the issue of shares. The second partis reserves.BALANCE SHEET Read the items in English and find the corresponding expressions in Croatian Fixed Assets Kratkorotne obveze Tangible Obveze prema vjerovnicima Tatangible = aay Se —Lobratunat, @neplacenirashod Tavestments Dividenda Total Fixed Assets ‘Ukupna kratkorofna imovina ‘Current Assets Dugorotne obveze ‘Stock Nematerijaina imovina Debtors Porez Cash Zads2ana dobit Total Current Assets ‘Ukupna materijalna imovina Current Liabilities Materjalna imovina Creditors Potrazivanja ‘Accrued Expenses ‘Novéana sredstva Dividends Payable Bankovni zajam Taxation Hipoteke ‘Overdraft Ostale rezerve Total Current Liabilities ‘Ukupna imovina umanjena za obveze Long-Term Liabilities Dugotrajna imovina Bank Loan Temeljni kapital Mortgage Financijska ulaganja | Total Assets Less Lial Ukupne kratkoroéne obveze ‘Shareholders' Funds ‘Ukupni viastiti kapital Share Capital Tekuta, kratkoroéna imovina Retained Profit Prekoratenje salda Other Reserves Zalihe Total Sharcholders' Funds Viastiti kapital a) Chose the correct answer: L. Intangible assets include a) goodwill, b) trademarks, c) copyrights, d) all of these 2, Long-term liabilities are those that are due a) in | year or more, b) in 5 years or moreLy b) Answer the following questions. Use the text on the previous page to help: 1. What are the three parts of the Balance Sheet? 2. What do assets equal? + 3. Name some fixed assets: 4. Give examples of current assets: 5, Namie some current liabilities: 6. Give examples of long-term liabilities: ¢) Let's check what you have learnt: 1, A company has $3,000,000 Owners’ Equity and $750,000 in liabilities. What are the assets of the company? a) $3,000,000 b) $ 750,000 ©) $2,250,000 4d) None of the above 2. A company has cash in the bank of $65,000, inventory of $25,000, and premises worth $100,000. These are the only assets of the company. It has liabilities that amount to $90,000, How much is the owners? equity in this company? a) $100,000 b) $190,000 2) $125,000 4) None of the above 3. Ashare stock in Podravka that your company owns would be: a) A liability b) Owners’ equity c) Anasset 4) Allof the above e) None of the above 4, Which of the following is not an asset? a) Retained profit b) Atruck ) A computer d) Anew building ¢) Allofthe above are assets{he cash flow statemen, Read the text and fill in the table below: The P&L account and the balance sheet give only Timited information on liquidity. Liquidity means having assets that can be tured into cash, 4 company's income statement can show a healthy profit for the year, although the company itself may not have the cash to survive. Therefore, it is important to know where the firm's funds come from ~ _-the sources.— and where they go — the applications. That is why the cash flow is a significant indicator of the financial strength of a business and the key to understanding how well cash is being managed. The sources of funds, or cash inflows, are the owners' own funds from the issuing of shares, trading profits, borrowed funds, and the sale of asset The applications of funds, or cash outflows, are purchases of fixed and financial assets, running expenses, interest payments, taxation and the payment of dividends. If there are more outflows than inflows, there is a cash deficit; more inflows mean a cash surplus. Having profits does not mean that a business has cash to spend. Cash means items to which an organisation has immediate or one-day access. It means actual cash, bank accounts, and short-term deposits. When the operating cash flow is negative, a company should make more profit, decrease stock, decrease the number debtors, and increase the number of creditors, a) The sources of funds are: b) The applications of funds are: ©) Sort out the types of costs: administrative, advertising, distribution, labour, selling, storage, production, R&D Fixed costs__| Variable costsCASH FLOW STATEMENT Read the items in English and find the corresponding expressions in Croatian Operating profit reciation Increase in stocks Increase in debtors Tficrease in creditors ‘Operating cash flow Interest paid Dividends paid Exceptional costs Tax ‘Capital expenditure Cash flow before finanein: Financinj Increase in overdraft Decrease in bank loan Decrease in mortgage Issue of share capital | Movement in cash a) Answer the questions: 1. Who might be interested in financial statements and the annual report? 2. Which financial statements might be of interest to the following stakeholders? © managers © suppliers © customers, © shareholders = employees, = bank managers,28 b) Look at the P&L Account and Balance Sheet and complete the sentences with suitable prepositions if necessary: 1. Sales increased $50,000 2. Salaries and wages rose $194,000 $245,000. 3. Last year, profit before tax stood 379,000. 4. The bank loan dropped $15,000, 5. This year retained profit is just $300,000 CASH COW ¢) Match the two halves of these sentences: 1. When a trader buys goods on credit 2. The purpose of keeping accounts is 3. The Inland Revenue authorities want to know 4. By giving customers two months to pay for the goods they buy, 5. A firm can encourage their customers to pay more promptly 4) how much profit a business has made in order to calculate any liability for tax. ) the manufacturer gives them time to sell the goods before they have to pay for them. ©) by increasing cash discounts. ) he does not have to pay for them immediately. ¢) to determine whether the business has made a profit or a loss. 4d) Many businesses, especially sole proprietorships, often do not have sufficient capital for business operations. How can they be helped? ‘They can buy materials on They can get cash from They can go to their bank and take out a ¢) Which of the above-mentioned solutions is the most expensive? Why?{) Match the words to make word partnershi 1 profit & a) assets balance b) money 3. cash flow ©) loss account 4. borrow 4) funds 5. annual ©) sheet 6. current report 7. sources of ) statement g) Underline the correct words: 1. A company’s/ companies share capital will be shown on it’s/ its Balance Sheet. 2. That was theis/ theirs suggestion. 3. They’ te/ their excellent. 4, The CEO/ CEO's office is on the second floor. 5. [like Toyota's! Toyota cars. 6. The government/government’s decision was correct. 7. The department/department’s strategy is wrong. 8, The idea was her/hers. 9. The sales! sale’s report is disastrous. 10. Ours/our results are excellent. h) Write down the key words from the following statements: Balance Sheet P&L Account Cash flow statement30 Look at the balance sheet of a typical commercial bank and compare it with a balance sheet of any other business: Asset Liabilities 1. Loans to customers 1, Customers’ current accounts 2. Cash and short-dated securit 2. Customers’ deposit accounts 3. Fixed asseis~ ami = 3. Reserves 4. Investments 4, Share capital Why is the itém «Cash and short-dated securities» critically important from the bank's point of view? accountinga Financial Statements EXERCISE 1 Which eight of the following sixteen words would you expect to find in a short text defining the different financial statements? balance bookkeeping bookmaking capital capitalist equilibrium flow liabilities limited liabitity overheads overturn pour = reservations reserves turnover underground Now read the text, and underline the eight words you chose above: Companies are required by law to give their shareholders certain financial information. Most companies include three financial starements in cheie annual reports The profit and loss account shows revenue and expenditure. It gives figures for total sales or turnover (the amount of business done by the company during the year), and for costs and overheads. The first figure should be greater than the second: chete should genevally be a profit — an excess of income over expenditure. Part of the profit is paid to the government in taxation, part is usually distributed co shareholders as a dividend, and partis retained by the company to finance further growth, c0 repay debts, to allow for future losses, and so on, ‘The balance sheet shows the financial situation of the company on a particular date, generally the Jase day of its financial year. It lists the company’s assets, its liabilities, and shareholders’ funds. A business's assets consist of its cash investments and property (buildings, machines, and so on), and debrors ~ amounts of money owed by customers for goods or services purchased on credit. Liabilicies consise ofall the money that a company will have to pay to someone else, such as taxes, debts, interest and morcgage payments, as well 2s money owed to suppliers for purchases made on credit, which are grouped cogether on che balance sheer as creditors. Negative items on financial statements such as creditors, taxation, and dividends paid are usually princed in brackets thus: (5200). ‘The basic accounting equation, in accordance with che principle of double-entry bookkeeping, is that Assecs = Liabilities + Owners’ (or Shareholders’) Equity. This can, of course, also be wricten as Ascots~ Liabilities = Equity. Arvalcemative term for Sharcholders’ Equity is Net Assets. This includes share capital (money received from the issue of shares), sometimes share premium (money realized by selling shares at above their nominal value), and the company’s reserves, including the year’s retained profits. A company’s markec capitalization ~ che toral value of its shares at any given moment, equal to the number of shares times their market price ~ is generally higher than shareholders’ equity or net assets, because icems such as goodwill are not recorded under net assets. A third financial statement has several names: the source and application of funds statement, the sources and uses of funds statement, the funds flow statement, che cash flow statement, the movements of funds statement, or in the USA the statement of changes in financial position. As all chese alternative names suggest, this scatemenc shows the flow of cash i. and out of the business berween balance sheet dates. Sources of funds include trading profits, depreciation provisions, borrowing, che sale of assets, and the issuing of shares. Applications of funds include the purchase of fixed or financial assets, the payment of dividends and the repayment of loans, and, in a bad year, trading losses Ifa company has a majority interest in other companies, the balance sheets and profit and loss accounts of the parent company and the subsidiaries are normally combined in consolidated accountsEXERCISE 2. According to the text, are the following TRUE or FALSE? 1. Company profits are generally divided three ways TRUE/PALSE 2. Balance sheets show a company’s financial situation on 31 December. TRUE/FALSE 3. The totals in balance sheets generally include sums of money that have ‘TRUE/FALSE not yet been paid. 4. Assets are what you own; liabilities are what you awe. ‘TRUE/FALSE 5. Ideally, managers would like financial statements r0 contain no items “TRUE/FALSE in Bracke, 6. Liriced companies cannoc make los because astets always equal TRUE/FALSE shareholders’ equity. 7A company's shares are often worch more than is assets ‘TRUEEALSE 8. The ewo sides ofa funds flow statement show trading profits and loses. TRUEFALSE Depreciation i a soutce rather than a use of funds ‘TRUE/FALSE 10. A consolidated account is a combination of a balance sheet and a profit TRUE/FALSE and loss account EXERCISE 3 The text above contains various British terms that are not used in the USA. Match up the following British and American terms: British American 1. creditors a accounts payable 2. debtors b. accounts receivable 3. overheads . income statement 4. profi and loss account overhead 5. shareholder . paichin surplus 6. share premium € stackholder 1 2 | [3 4 5 6 32.33 Auditing EXERCISE 1 Number the following words or expressions with their underlined equivalents in the text: accuracy (1) external Anqual General Meeting implemented board of directors ratified checking shareholders (GB) or stockholders(US) deficiencies standard operating procedures determine subsidiaries deviations a synonym directives transnational corporations “The traditional definition of auditing is a review and an evaluation of financial records by a second set of accountants. An intemal audit is a contol by @ company’s own accountants, checking for completeness, (1) exactness and reliability. Among other things, intemal auditors are looking for (2) departures fcom (3).a firms established methods for recording business transactions. In most countries, the law requires all firms to have their accounts audited by an outside company. An (4) independent audic is chus a review of financial statements and accounting records by an accountant not belonging to the firm. ‘The auditors have to (5) judge whether the accounts give what in Britain is known 252 “true and fair view" and in the US as a “fair presentation” of the company's [corporation's] financial position. Auditors are appainced by 2 company's (6) most senior executives and advisors, whose choice hes to be (7) approved by the (8) owness of the company’s equity at the (9) company’s yearly assembly. Auditors write an official audit report. They may also address a “management lercer to the directors, outlining (10) inadequacies and recommending improved operating procedures. This Teads to the more recent use of the word “audie” as (11) an equivalent term for “control” (12) multinational companies, for example, might undertake inventory, marketing and technical audits. Auditing in this sense means (13) verifying that general management (14) instructions are being (15) executed in branches, (16) companies which they consol, ete EXERCISE 2 Add appropriate words to these phrases: 1, Auditors +++, Companies’ accounts. 2. Accounts have to... +--+. +a faie presentation. 3. Audicors write a see 4. [t's che directors who. - . the auditors. 5. Auditors sometimes . . better accounting procedures. 6. Using external auditors is... requirementAnnual General Meetings 4 EXERCISE 1 Write the questions about AGMs to which these are the answers: 1 All the sharehalders. 2 3. activities; to elece (or re-elect) ditectors and auditors for the coming year; and t0 vote on the size of the dividend that will be paid. 4 : Toe : ‘The company generally sends them the Annual Report before they come to the meeting. SEs a eeereee set seee ree Peo eee ; They can be represented by proxy; that means they can nominate someone else, called a proxy, to attend the meeting and vote for them. 6. the quorum is usually specified in the company’s Articles of Association, along with all the exact cules concerning shares, general meetings, the powers of directors, the election of officers, the approval of accounts, ete. ‘The following question starters may help you: 1. Who is eligible to. Heat 2. Are all the shareholders entitled to. --. 3. What is the purpose of . 4. What information .. 5. What happens if... 6. How many shareholders EXERCISE 2 Complete the following phrases: 1, The se receive a copy ofthe oe. eee ‘Acthe AGM, they have to... - the company’s accounts. 4. They also... - «the company's directors and ........ 4. They vote on the size of che . . . . t0 be distributed. 5. Shareholders can appoine......-.... to vote in their place.os Royal Outch/Shett Another Enron? Assessing theseriousnessof Shell's crisis OVAL DUTCHISHELL, one of the world’s largest oil companies, “reck lessly violated accounting rules and guide- lines, which resulted in an enormous and shocking overstatement of oil and gas re- serves." So claims Berger & Montague, an American lawfirm now suing Shell on the {grounds that this “enormous” deception hhas harmed shareholders and “severely, overstated” the firm's market value, Berger is but one of a number of law firms now preparing classaction lawsuits against the oil major for purported malfeasance. Lis ten to such voices, and you might think that venerable old Shell has cooked up a scam of Enron proportions. Justeonsider the mess. tn January, Shell shocked the energy world by reducing its “proven” reserves of oil and gas by a ‘whopping one fifth, amounting to nearly four billion bartels of oil. Shortly there alter, ir Philip Wats, its aloof chairman, brushed off accusations of wrongdoing or incompetence. Even as the firm launched ‘aninternal investigation he vowed to stay at the helm. Last week, the company’s board sacked him and appointed a new boss, Jeroen van der Veer. This week, an explanation for the board's surprise deci sion seemed to tum up: memos leaked to ‘American newspapers suggested that Sit Philip had known as far back as 2002 aboutthereserves problem. There may be worse 10 come. The knives are out for Judy Boynton, Shell's ‘American chief financial officer. in addi- tion to the {ntemnal investigation, Amer ica's Securities and Exchange Commission (zc) is now looking at the frm. Alas, the leaked miemos suggest that Mr van der Veer may alse have known about the mis categorisation. And even if he survives the scandal, hermay yet thanks toa courteaze in New Jetsey)have to fend offdass-action lawsuits Glen Abramson of Berger8 Mon: tague gleefully declaces that the memos surfacing this week strengthen his firm's case. More law firms seem certain to join REE TEES tt 203 feat Ser the sceum before the filing deadline on Despite al his, there are some easans vothink thatthe curcentcesisat Shell may rotintheendamounttoanotherEncon At thedefunct energy tader,thebosses made Alonghabitot enriching themselves atthe txpense of the company's ordinary em ployees and shareholders In contast, Iwhatever his other error, Sir Philp was tot evishly pad. His total compensation ‘wasmuch ynalerthan thatofhistivalsat tr and Exxon Mobi. The incentive to heat fiddling the books seers atleast fon curent evidence not to have been a6 Songs at Enron ether itsreported that only ty fraction ofthe relevant Sell ‘manager ay depended on the booking at el and gas reserves, altough the s€€ may now examine this Notquiteashellgame More rpporanty, Shell’ shifting of re serve fom “proven” to “probable” sim: ply cannot be compared with the phan- tom pros ané bogus assets booked by Enron, Thatis because thecilandgusactu- allysillexssand Shellsull owns her as real, usable assets. The shit in category ‘means that they are not close enough to ommertiaisaton for Shell w consider ther, under so0 rules, = "proven." How” cevetexperts say that “probable asstsare ‘ise ely to geo market~just nots quickly as proven ones. Derek Butter of Wood Mackenzie, an industry consul- taney, goes further: the Gems bungled ve categorisation, he insists, in. “no way changed our view of Shel?s commercial reserve potential Most investors seem 0 be taking the same view. afer an inital drop of 8% on the news of the restatement of reserves in january, Shell's shares have her wel See ch > How could that possibly be given the ssec's definition? Mr Butter thinks that the narrow focus of the S&C and some inves- tots on provenreservesmay be misleading He describes the “2e" measure (proven plus probable) as “the company's best guess on what will be produced”. Itis, he insists, a beterindixator ofa firm's under lying valaation than proven reserves alone. On that argument, Shell's “tecate: {gorised” reserve position stil looks decent (Gee chard. Wood Mackenzie points ap- provingly to Canada and Austalia, where firms typically disclose the 2° measure. Even critics think tha the current me- dia frenzy over reserves miay miss the ‘mark. Erie Knight of Knight Vinke fsttu- tional Partners, aninvestmeatfund partly ‘qumed by the Calrens pension fund) that Folds Shell shares, as been pushing the firm hard to reform its corporate gover- nance. ill he thinks today'sfocuson pro ven eservesthatcan gettomarket quickly fefleets a short teemism among investors that is inappropriate for a sector that is more akin to slowandsteady utilities than to“growth’ socks Even if there has not been an Enron- style looting of Shell, there are two impor- lant lessons already fom this afat fististhat Shell needs o dé much beterin the future at Anding new hydrocarbons. Though its 2e igure is decent, he firm still lags its chief competiors-and.risksaling further behind them. AS one rva oil and 42s executive put it, “The problem is not the downward revson-we al debook? ‘every yeas, but we ust book even more in new reserves. The fundamental problema at Shell is that it sn replacing reserves." For ths, analyst blame 2 combination of Yad luck, underspending and out ‘manoeuvring by 8 and Bexon for Shell's ‘Poor upstream performance. “The second lesson is thatthe company must become much more tansparent. ‘This ie a general problem for the entire oll industry, which rarely discloses its ac~ counts in any detail Such habits ate now likely to change. Oilmen are alkingof em- bracing independent audits of reserves and ther voluntary measures designedto ‘read off onerousnew regulations. “he firm with the greatest need for te- form atthe top, however is Shell. As the scale of any misstatement or deceptionbe comes clear, Further heads may rll More Important wil be structural reforms to the unwieldy ways in which the company's {so parts-Royal Dutchand Shell-arecob- bled together. This awkward structure ‘weakens the chief executive, argues Me Knight, and fosters lack of accountabil: lay" Mr Knight says that he was lecturing Sir Philip om peeczely this topic just days before SirPhlip got nesack. Yet even Me Knight a erusader far €0r- porate governance, defends Shell dhus: "There's no black hole, assets haven't dis appeased or been misappropriated” The real damage, e says. may be othe firm's fonce-stllar eputauon. Whether of not Shell's bosses made an honest mistake in ‘booking those four billion barely of oil tow matters less than how they handle whathashappened.European corporate governance The pause after Parmalat 1 “ties HEN Enron imploded in 2001, America responded quickly and vigorously to a hhuge fraud, Politicians used the B Enon afairasa wake-up call for ‘American businesses. ‘Tough new Tules were introduced, no- tably the Sarbanes-Oxley act. “Managers were told to sharpen up their standards. One of the ‘wodd’s biggest accounting firms disappeared, is reputation shattered by the actions of afew employees. Briefly, theinteg- rity ofthe entire capitalist system seemed under threat. ‘The collapse into bankruptcy of Parmalat, an talian dairy- products group, has become Europe's Enron. Billions of euros are missing. A once-respected frm is in taters. Thousands of jobs are atrisk. This European scandal shares miany elements withthe American one, fromcorruptmanagementand acom- placent board of directors to complicated financial dealings in offshore tax havens via big banls. which seem to have been ‘only too willing to underwrite the deais that kept « massive fraud alive for years. As at Enron, atthe heart ofthe ftaud lay an accounting and auditing fiasco (see page 50). Yet how has Europe responded? Soar, with ite of Amer- ica's vigour. In fact, the response has been rather muted. Plenty of observers wantto dismiss the afairasa local talian matter. After aN, didn’t Silvio Berlusconi's govemment water down penaltiesforfalse accounting? Andisn'italy amodel of disregard for rules on corporate governance, aplace where the rights of minority shareholders are regularly abused? ‘Unfortunately, these truths conceal as much es they reveal. ‘As more has emerged about the fraud at Parmalat, i has be- ‘come clear that the proper context for analysing itis @ Buro- pean one. Theres an important Italian dimension, to be sure. By quickly changing its bankruptcy law and proposing a siweeping reform of its regulatory system, Italy has shown. that, despite doubts, it may yet be capable of overcoming its normal political torpor. The decision this week by taly's Con- stitutional Court to overturn a law which granted Mr Berlus- coni legal immunity while in offce also shows that the coun- tuy's judiciary is not supine (see page 24). And yet while Mr Berlusconi runs the government, any reforms that touch the corporate sector willbe tainted by the suspicion tat they are designed for hisbenefit, oratleast todo his interests ne harm. Thereallessons for Europeare broader. The aud at Farma- | ezaraaerse Burope'Enroncalsforameasured butmore determined response let gulled not only Halians but international investars, banks and credit-ating agencies. Farmalat even had an American listing for some of its securities to add to its air of normalcy. in short the faudhasexposed how vulnerable the jinaviai y5- tem remains when safeguards ate perverted, either deliber- ately or through incompetence. The main aim should be to make frauds easier to detect and harder to perpetrate. Strengthening auditing standards and compliance, as well as therole of truly independent board directors,is essential. The European Commission has already suggested that it ‘would lke to strengthen auditing standards, perhaps by insist ing that member countries introduce accounting-oversight boards, like the one required in Americaby Sarbanes-Oxley, to enforce the implementation of international accounting rules that will become obligatory for ali xv companies next year. That seems sensible. in addition, thé commission should try toimpose more onerous standards on Europe's many securi- tiesexchanges. Tougher requirements on firms that want olist shares or sel bonds create a strong incentive for businesses 10 be open about what they are doing and make ic much easier {or outsiders to make informed judgments. Inthe short term, pressure can be exerted locally, by encouraging national cx changes (including Italy's) to adopt stricter rules, Longex term, asmarkets and exchanges consolidate, such rules shiould con: verge ona Furopean-wide benchmark. Rainbow regulation Even such modest initiatives as these, however, are difficult Parmalatis reminder that Europe stllhas along way to goto- ‘wards the harmonising of either accounting or corporate-gov- ‘emnance standards on best practice. Businesses operate amid a patchwork of rules and securities markets, and fraudulent firms can exploit this. Harmonisation need not mean a strait: jacket of uniformity. Long-standing cultural differences will justify some variation. Nevertheless, itis in Europe's long- term interests to reduce the sheer intricacy of the current ‘patchwork, especially because EU enlargement will inev- ftably add some vibrantnew colours. Doingso willrequite determination and political co opera tion. National governments should support any efforts made bby the commission to generate better practices and standards, starting with the basic building blocks of corporate auditing and accounting, tf that is Europe's response to Parmalat, then Europe's businesses will alle betes foci. mCorperate Acliances How mergers go wrong ~38 International mergers Discuss these questions. 4. How would you define a merger? How does it cifer from an acquisiti 2 Think of tree or four big internatfonal mergers in recent years. Have they been successful? 3, What kind of things do you think can lead 10 problems or even failure in international mergers and acquisitions? Ee A Understanding main points Mark these statements T (crue) or F (false) according to the information in the text on the opposite page. Find the part of the text that gives the correct information. 1 The majority of mergers take place in the USA. F ‘2 Many international mergers are failures. 3 Most attention is concentrated on what to do after the merger is completed. 4 Many mergers are done too quickly. 5 Connecting different compster systems togethers not usually a problem. 6 High salaries were given to Chrysler managers as compensation far the merger with Daimler-Benz. 7. Chrysler has won many prizes for its production methods. & Engineers have a high status at Daimler-Benz, B Understanding expressions ‘Choose the best explanation for each extract from the text. 1. ‘the merger wave is now sweeping over Europe’ (ine 2) a) alot of American companies are merging with European ones ') there has been a big increase in the number of mergers involving European companies 2 “success will depend on the merged companies’ ability to create added value’ (ine 18) a) they must try to make sure the share price goes up after the merget '8} they must try to reduce costs and increase revenue in the new merged company 3 ‘post-merger integration has become decisive’ (line 33) a) the way merged companies work together 2s one company is extsemely important 'b} itisnecessary to take quick decisions after the merger is competed 4 ‘the growing importance of intangible assets’ (line 63) a) some assets are carefully protected and cannot be touched 1b) people are the most valuable asset in many companies39 HOW TO MERGE After the deal Doing deals is easy. As mergers hit record levels, now comes the hard part jhe merger wave, which in I 1998 was a predominantly ‘American affair, Is now ‘sweeping over Europe. Cross-bor: sder deals, such as Daimler-Benz’ takeover of Chrysler, accounted for a quarter of mergers In 1998: more are expected as firms go slobal 10" In many casee this consolida- tion makes sense - at least on paper. But just as certain as the flow of deals is that most will be failures. Study afer study of past 1s merger waves has shown that two ‘out of every three deals have not worked. Success in the future will depend more than ever on the ‘2emerged companies’ ability to cre ‘ate added value, And that will depend mainly on what happens after the deal has been done. Yet ‘many deal makers have neglected as this side of the business, Once the merger is done, they simply assume that computer program ‘mers, sales mangers and engineers ‘will cut costs and boost revenue swaccording to plan Yet, just when post-merger inte- ‘eration has become decisive, thas become harder to pull off. Notonly comes fare modern firms complicated sselobal affairs, but executives are putting today’s deals together in a ‘hurry. Few giveenough thought to the pitas ‘Ono set of obstacles is ‘hard! sothings, such as linking distriba- tion or computer systems. In par- tealar, many recent mergers have ‘been undone by the presumption that information technology Is sseasy to mesh together. More difficult are the ‘soft issues’ ‘Keeps popping up culture. People never ft together as easly as flow sacharts. Culture permeates a com- ‘pany, and differences can poison ‘any collaboration. After one large ~ US merger, the two firms had a row ‘over’ the annual pienic: ssemployees of one company wore ‘accustomed to inviting spouses, the others were totally against the idea. The issue was resolved by inviting spouses only in alternate cayears. ‘Two new things have made cul- ture clashes harder to manage ‘The first is the growing impor tance of intangible assets. In an ssadvertising agency, for instance, ‘most of the value can walk out of C How the text is organised What do these words refer to in the text? 2 which 2 more (line 8) 3. most (ine 3) 4 that (ine 2) a) merger wave 5 this (line 25) 6 they (ine 26) 7 it ine 32) 8 few (line 37) Interotionst mergers | the door if key people leave. “The second new thing is the number of cross-border mergers. ‘soln this area DaimlerChrysler may ‘prove to be an interesting case study in differing management cultures. One worry is compensa tion: Chrysler’s pay levels are remuch higher than the German ‘company's. Soa US manager post ed to Stuttgart may end up report ing toa German manager who is earning hot hecalary. 0 _ Nor is pay the only difference. CChirysier likes to pride itself on its flexible approach, where speed and ingenuity are prized. When designing new motels, teams of ssengincers, designers and market- ing people work on each model Daimler-Benz has a more tradi tional structure, in which design: ers and marketing people mix less soand engineers are in charge. ‘Some recent deals will no doubt prove a stunning success, Nevertheless, there are three omi- nous signs about the current ssmerger boom. First, much of the attention seems to be on the deal itself rather than the integration that must follow. Second, many eals are rushed, And third, mers. 1eoers have to often become a strate- ‘gy in their own right, ‘So the things that are'so impres- sive about today's mergers ~ their ‘Size, complexity and daring — ‘could count against them if the economy turns down. From The Economist Lah ore ete ena etme Arechee tt4o ‘A Word search, Find a word or phrase fn the tom that has a similar meaning. 1 mergers between companies from twa different countries (para 1) COBB een b OCAE un 6A 2 when one company buys aniother (para 1) t via para a Ba 4 people who negotiate the terms of a merger (gara 3) erred §5 reduce the amount of money spent (para 3) fi pe 6 increase income from sales (oara 3) ». eee 7. work that needs tobe done after the merger agreement (para 4) Die tetcei mieit D 8 sent to a job in another country (para 8) Prew 8 Understanding expressions Choose the best explanation for each word or phrase from the text + pulloff (ine 33) a) stop b) succeed 7 2 pitfalls (line 38) 2) problems ) accidents 3 mesh together Gine 45) a) combine b) mixup 4 popping up (line 48) a) exploding D) coming up 5 permeates (line 50) a) destroys permanenily ') goes into every partQe International mergers | 6 pride itself (line 61) a) be pleased with yourself for something b) tell everyone about your good points 7, ominous (ine 93) a) easy to predict b) predicting something bad 8 in their own right (line 101) a) by themselves b) ina correct way Prepositions ‘Complete these sentences with an appropriate preposition. 1 Cross-border deals accounted -...-.f0......a quarter of mergers it 1998 every thre deals have nat worked. - the merged companies’ ability to seate added value, plan. 2 Two See 3 Success will depend... 4 They assume sales managers and engineers will cut costs according 5, Executives are putting deals together . a huey. 6 Employees of one company were accustomed .. - inviting spouses to the annual picni 7. An American manager may report German boss, f 8 In Daimler-Benz, engineers are... charge. 4 The article eenphasises that the postmerger integration is the hardest but most important part of the deal. Here isa list of some issues that must be considered to enable things 10 work well after a merger has taken place. Which are the most important? Can you add others? What factors need to be taken into account when coming to decision? ‘+ who will be the chief executive of the new company? = where will the HQ be? + iCivis a merger beawzen compentes fe should the company language be? * on which stock exchange should the new company be listed? + where there is duplication, e.g. two centres for R&D, should one be closed? + should key managers be moved to different parts of the merged company to speed up integration? 2. Differences in pay levels between the two companies in a merger can cause problems. Imagine ‘you are members of the Human Resources departments of the two companies. Hold a meeting to discuss this problem and try to suggest some solutions.Takeovers Complete the texts with the words in’ the boxes: Sooner ot later, all companies need to introduce new products and:services. Large companies often, have the choice of innovating ~ developing new products, services or markets themselves - or of buying another, smaller company with successful products. Ifthe other company is too big to acquire, another possibility is co merge or amalgamate with it. Other seasons for taking over or combining with ‘other companies include: diversifying optimizing _rationalizing reducing reinforcing searching your company’s position; Leese + Competition; cee produetion; the use of a plant or invested capital; + products or markers; and, synergy (the belief that together the companies will produce more!than the'sum, C6 part). cee aye ene > buy grow increase. ~ faunch persuade sell Accompany that wants t042).......... or diversify can (8).......... a raid — in other words, simply (9) .----+ +++ +a large quantity of another company's shares on the stock exchange. A “dawn raid” consists of buying shares through several brokers eaily in che morning, before che market has time to notice the rising price, and before speculators join'in. Thi will immediately (10) . the share price, and may (11). a sufficient number of other shareholders to (12) for the raider co take.control of the company. board friendly hostile poison pill white knight Ifa raid i not, or would not be, successful, a predator can make a takeover bid: a public offer fo a company’s shareholders to buy their shares, at 2 particular price during particular period. A(I3)...- takeover has the consent of the directors of the company whose shates are being acquited; a (I4)........-+ takeover bid is one undertaken against the wishes of the (15) of directors. Defences against a hostile takeover include the (16) . — a defensive action. taken to repel a raider, such as changing the share voting structure or the board of directors, oF spending all the company’s cash reserves. If measures such as these do not work, a company can at least atcempt to find a (17). +. = another buyer whom they prefer. AL,43 Look at these clippings from The Economist's BUSINESS section in the column entitled “The world this week”. Can you comment on them? PeopleSoft option PeopleSoft rejected a sweetened takeover offer of $9.4 billion from Oracle. Peo- pleSoft said the improved bid from the rival American soft- ware firm was inadequate and that it would meet substantial opposition from America’s antitrust regulators. gaterst The European Commission Avene, al 8 for and America’s Justice Depart- Scbibrmy, ment gave the go-ahead for a Fe bid gon S38 ecto merger between Air France Arete Sanaa iva) pO bos. and KLM. The new airline will Ofer ato boy, VUthgjereh become the world’s largest in se leacy tte. terms of revenue. phy Pearse tbour ge Quaye ors * Bory ore lang ‘ OO OO Ge" wt ; BO Or goo a Cane no pegs? oe wart? eco! ‘OAMSIOM athe ps F002 60 cen OE eg He? os aston wee 8s Bae TAS 9755 nolo BOSH OK od I ae pe CM amd gh i dO eey'sleF BO SP eH ee gah BM G00 KE nt det 9 ge BO a Lh oe Hanae ne OU prov pire ger End? ga gi sane 2 BO ate” Koen at atl! SARE ese SG AEST a sooty PEE ood See I NOT CO got ge fight W, ehecO™s serv tee one tend er co fer IS ent x yoortAg pipe Jo d8pa aun ie ayjyou sop Buideay Aypshol os st uiatp 30 1Uoy uf zoyepaxd atp yotum onus aoeds aannaduzoa aun aetp eins aq 0} Aiqrgazeo prem 0} ancy flim data sytoUL Buyuroo ayp Uy ‘auoTe Yaz ag 0} uBYp sHaquEnU adney Uy SuOLM 99 0 san19q stay yet Buypaay yp “oURSUI pray om Aq paouony +a} Aynysamod 2g {hen Aawp emp areane ag osje pnoys AYE “ana ad J9Aatt Wed yeyR ‘Og ABUAAISE Des yom suonismboe pue sraBiaur Suppeunye ,aBeraae aAoqe, se SaayasuIayp aquasap P[NoM Way JO %66 Jo Woys apAl] ‘payse JE eUp AME weer sy Wapyudr-za90 aq 0} SiouTE|M ssou “1snq jo Aouapuay feuaja atp reqnoned ui pue—oy NaS YsO reyp SSuyrey yp [e 02 oalgns are Aayp veyp 198104 ou Plnoys Anup ‘s066t aip jo SLOLIa auf Jo aULOS ProAR 0} YSIM SOHO J] “yupies op on teas dayp vere Apoexe mouy Aotp scart -{snq_2 10} syonq 81q Burded axe Aawp sryern aq [aa woNdumnsse ays Ysa UN YORU e [aan 1 SuN¥SOBI 109 temp 398% Pood » Bumods 203 ssa] papnf aq ya Soa0 ‘pua au ur z0¥ vey ananppe 01 Moy Jo We}d wap B ane 01 S1:aqOw AW 10} aanerod 10 2g (a ML waMD ‘wHTe syseoUI0D St uoRwABeVUT [eon9A Jt ‘staaoa(e pour Big Auretu Jo urna aun penoxd ogre set ing may e203 sauinyzoyapeur sey yoryen ABS lens v woHngunstp Yptan 1a} too ywauTUEaVID BUIUIqUICD jo luvayp Saumpua s,Ansnpur vipat atp Surseysraq aetpoyen 30 “wuzy panyeazepun ue dn yvaiq puy o1mboe On duuayye onstum -Joddo we st Aausicl 203 piq s,swaqoy JW Jaypayen rea] 4 Ou S11 COOz UT SUTa}SAS 2]qBd S,LE.LV 30} Sem pig Bigq snotaard sip “2109 sty 03 asoyp Atarey yom Ajjuapaz jun sey ‘Auvdaod 21q eo 1uerd ® ojut jseduiog ying Oya UeUL ax ‘Siraqoy teUg “ojopiod fujdueypase; ApeopIade ys ayerWIOLE -uo2 a}hiS-PJO We MeL axoUs pit sem ‘ITND@|A [er9UaH ‘apeo9p ey) Jo saruedwson physsaaans isou atp Jo avo YEnowpTe ,20Ua -adutoa 2709, stamp) Suma} sawp 0} Suppays Aq aad" az0ut pe pinoo Aatp puny sarueduzo3 ‘pazeyyes—aydurexa roy sna osu} Pue sa9—SistuoBejord yvauntiord your st 30 autos ‘Se WOIYSey Jo INO JUaMm ‘sassaUISNG Jo oY Od asiaatp v YT Auzduioo Surpioy atp ‘seiawo|auico vin Jo Bapl aia sa66r ayy uring awied 212] sem ssoursng Joadéy Suy any Auaa sais Aw PamouEU sanynsaxs doy Yaya aU e SEM arys. “s1aB12} Pood 204 Sunjooy daay pynoys Kaw og -punos® aug yo ssauisriq mau e Sunia8 Jo ssoueuD aup wat paredusco waym Sppo ped JOU st mM} Jo no auo ‘aseo Aue uf adefd waxe) Jou wap amp pey pauaddey aney pinom ieyan ypies paredasad aq 1aAau we Aotp pue ‘uesoy) Potrod aun ayy Aq poouany ur Ayiaeay are saindy.at4,“srapjoyareys s,Auedusoo Suumnboe auf 20} anya alee 04 [reyspeap Moy Asana jomnoaanpse AueUr se yeth SuseBEns sonsiieis palonb Ajapiaa mnoge yonur 00) ‘Atom tou pnoys days fe Jo ysttg Ang 01 ysnx BUILD ax Ut ssaoams jo sanueyp Hay) sAdidvss o} op SOO pyOys UML “mou um susos soy svaqapiias pa88a-o07m ® ay Pexoo] Sey IszoWIOD WI, pIQ a{nsoy B Jo r98IR “Kou SC (99-79 saBed d95) wee money ase 'jpoIs ayqaay SuttiND Jo Aven s,wop8upy arezodios ayp ‘spiq ajnsoy {mod ayy uo yee aou0 ae Kay yng ‘wWio0g Woojop atp Jo sassaoxa ay) Aq ‘Ayousg patrrseyp Waaq sary usm Kay SoajasuIayp 01 410]8 pur sajuedwioo staup 01 anqea pue tpmoi8 ppe 0} 1apio UL y>e1 We wgBu Kaya Bre ey aye|durajuod Aarp se wystUTye 3P9q ow 8 Sutssoiseaninoaxo Joryp joaBeu0ys ou moUs|aroyL “und 07 Ms puout axp Jo yaont e st a7aUp puP ‘uoITEG OOrS 49no Jo} yunoDoe (ssofoTIA LALY pue AeusiC HEM 10) SpIq aug) 2UOTR sleep omy, BY) 1eaq OF Afan]] stsas AreNIGag JO} an 84 atp pue ‘0007 199000 2001S pe aes Wyuow Aue 10j ysay8yy ayy sem " Arenue( ur paounouve suonss -inbse pure sieBreui [eqo/s Jo yuuom-uoreg Sots aq “simnds Jeune sayy eaoasipar 01 Supt 189q are s9Ssoq Auvdwos ‘uoneuaqiy Suo) e waLa ymord aig wo ino sessoq Auvdui09 10} sajou auI0g sdajs te) ut Surids suonisinb2e pue siabsay Taat te PDT Hl46 Study the following graphs. Complete the descriptions with information from them and language from the previous page. Several answers are possible. Check your answers wich those in the answer key or discuss them with your teacher. GRAPH 1 Profits 1967-1982 eof 1972, Bak fairer The (4) . Sgend in 1974 wat ee ce pee reece “DT. for ehree years, smaller, but after chat profit ontinued co (5) made a $5 billion loss in 1978, after which the figures (6) - before (7) .-+-+++.... again in 1982. GRAPH 2 Sales Years 1-12 16. 1“ 2 Sales (6 Milton) 12345 6 78 9 WH 2 ‘The year after we took over the company sales were good, at $12m, but the second year they (). : In fact, they dropped (2) 25%. Sales (3) ....--+++ for another ewo yeas, (4). - for one year, and then (5) .....----.- again twice. Since then, there has been a (6) . srowth for five years. In fact in just four years, sales rose - $4in (8). + $14m, an increase (9) . + 250%.Look at these graphs and comment them: I Mergers and acquisitions Top advisers, 2003, value of deals, $n 0 "100 *200 300° 400 Goldman Sachs Merrill Lyach Morgan Stanley 1.P. Morgan Citigroup, lazard Credit Suisse First Boston Lehman Brothers uss Deutsche Bank Bank of America, NI Rothschild, ‘NP Paribas ABN AMR,» Societe Générale sl: source: eatogic “TE Cemurmct , (0.01.04 46ae Mle Ceememust, February Leo ti Business Hollinger and corporate Law. Out of control Anew use for the Poison pi "HE poison pill is one of the most egregious créaturesiofyA [dde Britain’: 's Daily ‘Telegraph. Minority ling bids--hostile, at tleast, td though not ne it has the right to use a pdigon'pill tode- fend the interests of all. oS remarkable affair invol ternational, a newspap' long-time controlling, Black. This week, Hol tional’s board. Jaunched: #cluding the creation ofta;porson pill, t stop Lord Black’ selling cortrorotthe jeepatatei issue: ‘ eat \e cOurt seds it thi ‘aswell. 1%:Leveraged Buyouts 48 EXERCISE 1 Match the responses on the right with the sentences on the left: 1. What's the difference between a takeover a. Exactly. And make a profit in the process. bid and an LBO? b. LBQis shore for “leveraged buyout.” Ie involves b 2 company with a lor of borrowed money. 2. Borrowed from where? ¢. Not an appalling joke about “elbows”, I hope? 4. ‘OK. They're bonds that are considered to be fairly risky buc which pay a high rate of interest. People buy them because the high returns GPO oayou caro Udy tu generally compensate the risk of default. company. Then what? a 3. Ab-huh. Guess what my next question is? Well, iccan go wrong. If there's a recession or a stock market crash ic makes it more difficult 20 sell the assets, and if you have less sales revenue, it becomes harder to pay the interest on the borrowed money. 6. And then you pay back the bank or.the Well, you choose a large, badly-managed, bond-holders? inefficient corporation or congiomerate, or a company with huge cash reserves, or whose assets are worth more thaa its stock market value’ You 7. Sounds easy. buy it, restructure it, and sell. the profitable’ Ics called asset-stripping. 8. Oh I see, So it can go wrong. Justone —g. Wherever you can get it. You can try to get an more thing... ordinary loan from a bank, oF you can try to sell junk bonds 9. Forgec ic! he You sell ic again 1 2 3 4 5 6 7 8 EXERCISE 2 Add appropriate words to these sentences: 1. Leverage means using a high proportion of + «by junk bonds. 2. LBOsare often. .... 3. The people who try LBOs compare the value of a company’s assets with its...... 0068 4. The profic in an LBO often comes from - 5. LBOs have led to several «+ being splic up.New words in English e No language stands still. New words and expressions are always being created, usually because something new is invented or sometimes just for fun. No government committee decides whether a new word is acceptable or not; if it is used frequently, and in a variety of contexts, it will find its way into the dictionary. Here are some of the words and expressions that have come into English since 1980. = New science and technology faxable: able to be sent by fax machine _ 7 junk fax: unsolicited material, such as adverts, sent by fax tummytuck: a plastic surgery operation to remove fat from the stomach sound bite: a brief excerpt from a speech or statement, broadcast on TV New sports and fashions monoboarding: the sport of skiing downhill on a large single ski snowsurfing: skiing downhill standing sideways on a large single ski vogueing: a style of dancing to house music incorporating the movements and gestures of models displaying clothes a Political and social trends eco-friendly: not harming the environment cardboard city: area occupied by cardboard boxes serving as homes for the homeless teleworking: working from home communicating by computer and fax advertocracy: pursuit of public policy by mass advertising campaigns destatisation: withdrawal of the state from areas that were previously state-controlled as in the (former) Soviet bloc in the 80s and 90s Gorbymania: extreme enthusiasm for the former Soviet President, Mikhail Gorbachev newmannery: behaviour of the new man (gentle, caring, non-sexist) conch potato: a lazy person who prefers watching TV to being active New words from other languages fatwa: formal legal opinion delivered by an Islamic leader (Arabic) Karaoke: singing pop songs solo to recorded music in bars (Japanese) glasnost: policy of openness or frankness (Russian) a New forms or meanings for old words ageism: prejudice against someone because of their age nostalgise: to indulge in nostalgia pre-schooler: a child not yer old enough for school dark-green: holding radically green political beliefs singlehood: the state of being single rather than masried clergyperson: a male or female member of the clergy (a typical development from clergyman. Compare: chairperson) English Vocabulory in Use