(b) Draft a report suitable for inclusion in a Management Commentary for Jones and Cousin

Question

(b) Draft a report suitable for inclusion in a Management Commentary for Jones and Cousin which deals with:

(i) the key risks and relationships of the business (9 marks)

Answer 1

正确答案：
(b) Jones and Cousin, a public quoted company
Annual Report 2006
Management Commentary
(i) Introduction
Jones and Cousin is a global company engaged in the medical products sector. This report provides information to assist
the assessment of strategies adopted by the company and the future potential of those strategies.
Principal risks and relationships
Trends:
Expenditure in the medical sector is often controlled by governments and is, therefore, affected by government policy.
Thus the Group is largely dependent on governments providing funds for health care. Product innovation and the
resultant increase in competition could lead to downward pressure on the price of goods and a decline in the Group’s
market share which could affect the operational results and hinder the growth of the Group.
Currency fluctuations:
The Group reports its results using the dollar as its functional currency. As there is only five per cent of the business in
the country of incorporation, fluctuations in exchange rates may have a material effect on the Group. If the exchange
rate of the dollar strengthens against the Dinar and Euro, then group turnover and operating profit would be lower on
translation into dollars. As the manufacturing base is worldwide, the finished products when sold to the Group’s selling
operations could expose the Group to fluctuations in exchange rates.
Product liability claims and loss of reputation:
Although the products are not inherently high risk, there is a possibility of malfunction which could entail risk of product
liability claims or recalls on the product. Both these events could be costly and harmful to the Group’s reputation which
is dependent upon product safety. Any product liability claims or product recalls would have a negative effect on cash
flow and profit, and are likely to adversely affect sales of the product.
Highly Competitive markets:
The principal business units compete across many diverse geographic and product markets. Technical advances and
product innovations by competitors could adversely affect the operating results. Some of the Group’s competitors could
have greater resources and may be able to sell products on more competitive terms. If the Group were to lose market
share or have lower than expected sales growth, there could be an adverse impact on the Group’s share price and future
strategies.
Patents and Products;
The Group protects its intellectual rights in its products and opposes third parties where there is a conflict with the
group’s patents. The Group may itself be subject to patent infringement claims. If the Group failed to protect its position,
its competitive position could suffer and operating results be harmed. Similarly if any claims are successful then damages
may have to be paid, or non patent infringing products developed, both of which would adversely affect results.
Product innovations will occur constantly in the sector and, therefore, the Group has to continually develop products to
satisfy consumer needs and to provide cost and other advantages. Not all products will be brought to the market for
several reasons, including failure to receive regulatory approval or infringement of patents. Thus there is a significant
cost implication in the research and development of products. However, if new products do not remain competitive with
competitors’ products, then Group sales revenue could decline.
Relationships:
The Group has developed a set of corporate social responsibility principles which is the responsibility of the Board of
Directors, and the Managing Director in particular. The Group contributes to the treatment and recovery of patients within
its product range by providing solutions to health care needs. Although having a relatively minor impact on the
environment compared to some companies, any obsolete products are disposed of in an environmentally friendly way
so as not to potentially compromise the health of its customers. Reusable materials are used in the manufacture of
products.
The Group fosters ethical relationships with its suppliers and encourages them to share the same social and
environmental standards. In this way a long term relationship is expected to be developed with suppliers.
The Group’s employment policies are based on equality of opportunity and the performance standards and goals are
communicated to the employees. Jones and Cousin is committed to the provision of continuous training and
development and open communication with its employees. Additionally the group encourages its subsidiaries to reinvestprofits in local educational projects.