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PLAN

Nehby Company (Nehby) is a family business which owns and operates eight restaurants in Caputo, the
capital city of the country of Ceeland. Caputo is located in the south of the country.Nehby has been in business
for the last 35 years. During that time the company has created some of Caputo’s most iconic and best loved
restaurants. The theme of their success is renovating and restoring historic buildings, transforming each one
into a beautiful and original restaurant.

The original founder, Graeme Nehby, is also the chief executive officer (CEO) of the business. Graeme has a
strong personality and his views have tended to dominate the direction of the business to date. Graeme’s
three sons have all joined the family business and together with Graeme form the board of Nehby.

Figure 1 below shows the current reporting structure and ownership of the business.

The Nehby board is considering the future strategic direction and investment plans for the business. The sons
have suggested that Nehby should pursue a strategy of product diversification and enter the hotel industry.
They have identified a new business opportunity, in the north of Ceeland, to renovate and restore a historic
building, formerly a bank, and turn it into a hotel, which will be operated by Nehby.

However, Graeme believes that the business should continue with its current business model of converting
historic and iconic buildings in the capital city into restaurants and wants Nehby to open another new
restaurant in Caputo.

Graeme and his three sons want to seek advice and guidance about the opportunities available to them. They
have commissioned you, as an independent self-employed management consultant, to provide them with
information and analysis to support their future expansion plans and advise them about their choice of
strategic direction.

Chief Executive Officer Graeme Nehby (Sharehold 40%)

Restaurant Operations Peter Nehby(Sharehold 20%)

Restaurant Managers Finance and ITJohn Nehby (Sharehold 20%)

HR & MarketingAndrew Nehby(Sharehold 20%)

TASK1

Prepare a report which assesses and appraises the two options from a strategic perspective. The report should
allow the board of Nehby to compare and contrast the two options. Note: A recommendation is not required.

Professional skills marks are available for demonstrating evaluation in assessing and appraising the information
the board of Nehby will need to use to form the basis for their final decision. (4 marks) (24 marks)

(20 marks) - 10.43

10 points * 2 mks

Report

Exh 1, 2 & 3

SAF

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we will continue to differentiate ourselves effectively from the competition and deliver more of the success we
have achieved to date

Money, Manpower, management, Markets, Make (Brand)

reactive approach means we can change the strategy as we see fit

business for the last 35 years significant contribution in shaping Caputo’s dining scene for 35 years.
acknowledgment for their role at the forefront of Caputo’s rise to becoming one of the culinary capitals of the
world//signifi cant contribution

best loved restaurants / visionary approach and attention to detail.The very best restaurants are like film sets in
which diners play both cast and audience and no restaurateurs know this better than the Nehby executives/
excellent service and our unique and innovative fine dining atmosphere, we will continue to differentiate
ourselves effectively

masterfully renovate/nstitutions /

The clientele are demanding and refined/

hands-on approach and a board member often being present in the restaurants.

One of our clear aims is to maintain growth in our core markets by retaining the values associated with our
current restaurants

Assess/Estimate/Appraise

ANSWER Q1

REPORT

From: Management Accountant

To: The Board of Nehby

Date: 20th August 2020

Subject: Future strategic direction and investment plans for the business options

SUITABILITY

Having been in the restaurants business for the last 35 years and with its continuous success, Nehby is a
renowned chain on the dining scene of Caputo, the capital city of the country of Ceeland.

Its oustanding reputation stems from its avant-garde approach of revolutioning the dining experience and placing
the city on the culinary world map. The name Nehby is already associated with excellence and fine dining, the
opening of a new restaurant by the chain will surely meet the same enthusiasm of the other 8 restaurants and
continue to support the company's success on an slightly bigger scale.

Diversifying into the hotel business, even though not exactly the same model, will allow Nehby to invest into a
related business and continue to widen the gap with its competitors. As such, Nehby's current clientele and
tourists will be able to add the hospitality to the culinary experience.

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Moreover, there is a real chance the combined business will achieve efficiencies on a high scale through
synergies of the 2 models and sustain Nehby competitive advantage.

In addition, there is a current opportunity to obtain governement funding for the development of of new hotels in
the North of the Ceeland which Nehby could benefit from, especially as the popularity of the capital is now
extending to the North. Having a presence in the region will continue to cement Nehby as an oustanding chain.

ACCEPTABILITY

Both the food and the hospitality industries heavily contribute to the economy of Ceeland and will be seen by
external groups as a welcomed move. Being the main sources of income and employment in the country, both
options will guarantee a higher level of employment of the poulation but aslo support to scociety as a whole
through the payment of more taxes for example.

Internally, the clear division appears at the Board level, where the majority with 60% is more in favour of
pursuing the diversification project and the remaining 40% wishing to continue to build on the successful
momentum of current activities. This would suggest a preferance for investing into the new hotel business over
the opening of a new restaurant. However, Nehby being primarily a family business, the board decisions could
tip in favour of the new restaurant opening project depending on whether the minority 40% decide to exercise
their authority over the other 60%.

FEASIBILITY

For any of the options to be viable, an inventory of Nehby's resources in terms of money, manpower,
management, marketing, markets and make has been completed. This review is necessary to ensure the Nehby
will make good use of these assets for a better future.

Money: By continuing on the same business model, Nehby will continue to make use of its core strenghts and
competences; i.e. The service provided being the same, Nehby will be able to easily transfer its acquired
knowledge and experience with the other 8 restaurants to the future one.trading in a familiar environment where
the company will be able to make use of economies of scale

PLAN TASK 2

Prepare briefing notes for the board of Nehby on the following:

(a) An explanation of the appropriateness to Nehby Company of diversifying risk by going into the hotel
business. (6 marks)

10.58

3 points * 2 marks

exh

Probe/Question/Challenge

Professional skills marks are available for demonstrating scepticism in questioning the appropriateness of
diversification for Nehby. (2 marks)

(b) Consideration of the key factors which will influence the financing structure the board of Nehby
Company might choose. (8 marks)

4 pts * 2 mks
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Current debt/equity mix

financing costs

Board's risk appetite

11.16

Use judgment/Demonstrate awareness/show insight

Professional skills marks are available for demonstrating commercial acumen in using judgement and showing
insight in clarifying the key factors and their implications for the board of Nehby. (2 marks) (18 marks)

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