Focus Point Holdings Berhad Essay

FOCUS POINT HOLDINGS BERHAD Introduction This case analyzes the effect of Focus Point Holdings Berhad financial strategy on the firm’s operating activities and financial performance. Focus Point Holdings Berhad is an investment holding company that engages in the operation of professional eye care centers in Malaysia. The company is also involved in the trading of eyewear and eye care products; management of franchised professional eye care centers; provision of medical eye care services; provision of food and beverages services; trading of hearing aid solutions and related accessories; and retail of optical and related products. It operates 175 professional eye care centers under the Focus Point, Focus Point Optical City, Opulence, eyefont, ExcelView, Solariz, and Focus Point Signature brand names, each serving a different market segment. This Malaysian home grown optical store was established in 1989 as Focus Vision Care Center. In 1993, it became a private limited company and in 2010, a public entity. Financial Strategy  With the understanding that the fundamental success of a strategy depends on a realistic internal view of its core competencies and sustainable competitive advantages, the company translated its vision and mission statements to pursue its economic objectives. Vision: To become a leading brand in Asia through our focus approach in vision care Mission: To provide consumers with the best vision care and eyewear services as well as to uphold the highest standards in reliability, quality and profesionalism The company arrived at two major decisions, that is, to go public and to franchise the store. 1 Going Public The company’s decision to go for listing on August 23, 2010 is a financial strategy that raised RM16.07 million of which 8.94 million was channeled into expansion plans and upgrading and refurbishment of the existing eyecare centers. The company pursued the market penetration growth strategy, aimed at increasing market share for existing products or services in existing markets. The focus of growth was on expansion of new outlets, upgrading and refurbishment of existing outlets and expansion of branded eyewear products. Franchising  Franchising enabled the company to improve on its economies of scale due to its size, brand name and experience. At the same time, it provided the company with the key advantage of incremental income with minimal capital expenditure in the setting up of new outlets. Revenue contributed by the franchising model mainly comprises of sales of eyewear and eye care products to their franchises and royalty fees which are based on 5% of gross turnover of the respective franchisee’s outlets, and franchise fees payable by franchisees which amount to RM30,000 for a period of 5 years. The franchise agreements signed between the group and their franchisees are valid for a period of 5 years, with an option to renew for another five years with the same franchise fees of RM30,000 payable over the extended 5 year period. To enhance the success of this strategy, a Memorandum of Collaboration was signed between the company’s management and Permodalan Nasional Berhad to facilitate financing for Bumiputera franchisees. The company also collaborated with Maybank on a similar loan scheme for non-Bumiputera franchisees. 2 Internationalization In the same year as its initial public offering, Focus Point Holdings Berhad began to pursue its overseas expansion by opening its first franchise overseas outlet in Brunei. The company’s internationalization effort accelerated the openings of franchises in other south-east asian countries such as Singapore, Cambodia, Vietnam, Indonesia and Thailand. The first-mover advantage gave the company the edge, especially in highly-populated countries like Vietnam and Cambodia where consumer spending power was increasing in tandem with their growing economies. On the other hand, Singapore’s economy provided an opportunity for the company to venture into high-end market for professional eye-care services. Effect Of Strategy On Operating Activities By going public, the company was able to collaborate with and convince financial institutions and agencies to provide franchising loans to interested franchisees. Access to financing and the strong presence in the nation resulted in an increase in the number of outlets from the pre IPO total of 130 outlets to 136 outlets in 2011. In 2012, the group has 170 outlets in of which 85 are wholly owned outlets and 85 are franchised outlets. The company cordial relationship with local and international principals and the close working relationship with departmental stores had also allowed the group to secure good premises and maintain Focus Point’s leading position in the market. The overseas franchise business is growing with Brunei alone operating 6 franchised outlets. The money raised from IPO that is used for expansion plan and upgrading outlets has helped in efforts to foster greater customer relations. This is vital for long term business sustainability as data indicated an increasing target population. With the median age of the population increasing, it is expected that the number of population with eye disorder will also 3 increase. The global vision care market is expected to grow by 4.4% over the period of 2010 – 2017. Effect Of Strategy On Financial Performance The IPO exercise, financing facilities for franchisees and internationalization have contributed to a higher revenue and better overall financial performance as shown: 4 PBT – Profit before tax PAT – Profit after tax The above financial highlights showed that the financial performance of Focus Point Holdings Berhad is stronger after going public and taking on aggresive marketing activities to generate increased business volumes. However, the group’s venture into the food & beverage (F&B) segment in the last quarter of 2012 has affected the group’s profit, earnings and 5 dividends per share. The investment in the fast growing F&B segment is expected to enhance the group’s revenue stream and profitability in a longer term. Company’s Performance Versus Industry  The overall level of competition among operators in the professional eye care industry in Malaysia is high as there are many players competing in the industry. As in many retail businesses, there is a low barrier to entry into the operation of professional eye care centres. However, there is lack of industry peers to benchmark as there are no other competitors that are directly comparable to Focus Point Holdings Berhad. Many of the competitors are smaller outlets, independently owned and run by the owners. The nearest competitor locally is England Optical Group with similar growth strategy – store expansion, franchising and internationalization. England Optical Group operates 131 outlets, 120 in Malaysia, 10 in China and 1 in Cambodia. With reportedly 10% market share of the local optical industry, Focus Point Holdings Berhad is currently the market leader in the industry. Market share among competitors are widely dispersed with each holding a smaller percentage of the market. Conclusion A financial strategy analysis helps department heads review external and internal elements affecting a company and how such elements impact short-term and long-term activities. There are never any guarantees for business success, but creating financial strategies gives any business direction and guidance. For Focus Point Holdings Berhad, to ensure sustainability, the group increased the source of income to include food and beverage, in addition to income from eyewear and eye care and franchising. Overall the company is on the  6  right track, focusing on innovation and product development, market expansion especially in untapped regional markets and maintaining a good public image. 7 References Bender, R. , & Ward, K. (2003). Corporate financial strategy (2nd ed.). |Burlington, MA: Butterworth-Heinemann Focus Point Annual Report 2010 Focus Point Annual Report 2011 Focus Point Annual Report 2012 Irene, Y. (2010). Focus point targets local and overseas market expansion after listing, Kuala Lumpur: The Star.com.my Lee, A. (2010). Focus point braces for future challenges. Kuala Lumpur: The Star.com.my Lee, KS. (2010). Focus point plans forays into South-East Asia. Kuala Lumpur: The Star.co.my News: Focus Point to expand via franchising. (2003). Retrieved from Malaysian Franchise Association: http://www.mfa.org.my/?franchise-news:focus-point-to-expand-viafranchising:2C00C881V1