How can P.T Godwin Austen Indonesia raise capital/funds for growth into the shipping and logistics sectors?

by gigaahil (student)

International Baccalaureate Business Studies

Saahil Khemnani

12G

Business and Management Internal Assessment- First Draft

Introduction

The P.T Godwin Austen group, Indonesia was first established in 1994 through its predecessor company, P.T Salil Agung Imexcorp. The company is a 100% Indonesian owned international commodity trading company focused on the exports of Indonesian agricultural commodities, such as Coconut bye products, palm bye products, cashew nuts and spices. The company had come from humble and early beginnings as an importer of HPS ground kernel nuts in 1994, and went on to become Indonesia’s largest buyers of copra expellers in an average volume of 100,00 to 120,000mt per annum. By 1998/1999, P.T Godwin Austen had become the country’s leading importer of the Indonesian agricultural commodities. However, soon after, the financial crisis which had begun in 1998 slowed down a lot of importing opportunities for the company, and soon, importing seemed to become unsustainable option for the business, Hence the company has decided to move into exports of the related agricultural products including palm kernel. The company now wishes to expand the business and focus on exporting of wheat flour and groundnut kernel. To achieve this, the company plans to diversify its business model and move into logistics and shipping sectors to support and consolidate its agricultural export business.

For such a venture, the company lacks funds or capital for growth in distribution for the commodities. This had therefore led me to the following research question, “How can P.T Godwin Austen Indonesia raise capital/funds for growth into the shipping and logistics sectors?”

Procedure/Methodology:

This report aims to carry out a feasibility study to manage the cash flow of P.T Godwin Austen Indonesia, and monitor their expenditures, revenue, and profit and loss accounts, to help better manage their cash flow, in order to raise more capital for growth in management and distribution of the business. To follow through with planning for the management of cash flow for P.T Godwin Austen, I had to take a look at their cash flow statements, as well as their profit and loss accounts. Also, I will also need to find out the company’s strengths and weaknesses, as well as the opportunities and threats that the company may be facing. Therefore, to carry out this research, the methodology that I used was:-

To obtain the company’s profit and loss account, as well as the company’s cash flow statement, for the most recent years. This methodology was essential so that I could monitor the cash inflow and outflow of the company as well as their expenditures of revenue received from the business. This method was relatively valuable as I helped me understand the current financial situation of the company and how they were handling their costs and revenue.
To discover the strengths and weaknesses of the company as well as take note of opportunities and threats that the business might be coming ...

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To obtain the company’s profit and loss account, as well as the company’s cash flow statement, for the most recent years. This methodology was essential so that I could monitor the cash inflow and outflow of the company as well as their expenditures of revenue received from the business. This method was relatively valuable as I helped me understand the current financial situation of the company and how they were handling their costs and revenue.
To discover the strengths and weaknesses of the company as well as take note of opportunities and threats that the business might be coming across in the future. To do this, I had conducted an interview with Mr. Praba Madhavan, the owner of P.T Godwin Austen Indonesia, to discuss the strengths and weaknesses of the company, and as well as talk about the forthcoming opportunities for the company such as increased demand for a particular commodity in one of the countries the company exports to, as well as threats such as the increase of competitors. This methodology was vital to speculate any opportunities in the future to raise more capital for the company from other sources as well as threats that may increase costs for the company, which results in an increase in outflow of cash in the company
To further observe the possible opportunities and threats to raise capital for the business, I had also explored the different political, environmental, social, as well as technological opportunities and threats for the company that could help in raising funds for the growth in distribution for the company. This method was important to discover different ways of raising capital for the company in terms of agricultural or financial benefits that may rise as an opportunity for the business to raise funds.

Main Results and Findings

Current Market status and position

P.T Godwin Austen is currently Indonesia’s leading local supplier of palm oil products, with their main competitors being foreign companies. This means that the current market position of the company is very strong. This is due to producers willing to supply their agricultural products to a local company, which they prefer, as opposed to supplying to foreign companies. Below is a table depicting the main companies that export palm oil in Indonesia, and their revenues.

As we can see from the table above, P.T Godwin Austen is at a relatively strong market position and is the leading local exporter of palm oils for Indonesia. Growth in the company is foreseeable because the palm oil industry is advancing in Indonesia, and Indonesia has now become the world’s leading producers of palm oil. Since palm oil agriculture producers prefer supplying their products to local exporters, P.T Godwin Austen receives an advantage from its main foreign competitors in receiving the products earlier and thereby yielding more profit.

Financial Liquidity and Cash flow

A company is said to have more liquidity if most of its assets can be converted to cash easily. A deposit account at a bank or stock is the most liquid while buildings are the least. Below is a collection of the Current as well as fixed assets of P.T Godwin Austen.

ASSETS

FIXED ASSETS

Cash flow is essential for a business as well. The cash flow of the business can be monitored through the profit and loss account which is given below:

More detailed versions of these statements as well as other statements and balance sheets will be included in the Appendices.

Analysis and Evaluation:

Having explored the different financial and external aspects of P.T Godwin Austen, Indonesia, it is a well-established, successful and profitable company that now faces the opportunity for further development and expansion. However, there still lies the problem of raising enough funds and capital to carry out the entrance to the shipping and logistics division. The company will be able to raise more capital by managing their cash flow. This means that they may have to increase their liquidity by reducing the amount of fixed assets that have the least liquidity. Another method would be to cut down expenses such as renovation of the office and maybe moving to a smaller space, to reduce operational costs and reducing amount of vehicles present since the company wouldn’t require much of road vehicles in the shipping sector.

Also, after performing a SWOT analysis, an observation based on the strengths and weaknesses of the company can be made, especially in the growing palm oil industry of Indonesia. Since the company is agricultural-related, the environment plays an integral part in the future of the company, and due to unpredictable climatic changes in Indonesia, it could prove to be a threat for the company as well as an opportunity to yield profit.

The first method of raising capital that will be discussed would be to reduce amount of fixed assets to increase liquidity in the business.

According to the results and findings above, the number of total fixed assets have skyrocketed since 2010 to 2011. This is mainly due to the increased acquisition of warehouses as well as office renovation. An excess of these assets could reduce the liquidity of the business, which will in turn, reduce its ability to raise capital. What the company can do is provide the empty warehouse space for hire for other businesses. This will essentially reduce the amount of acquired fixed assets, and increase liquidity of the business, and will also provide extra cash from rent of other businesses. The same principle can be applied to offices. Empty office space can also be hired by other businesses and will yield the same positive effects as putting the warehouses for hire.

The second financial method of raising capital would be to reduce operational expenses such as maintenance

According to the Operating expenses section of the balance sheet, (See Appendices), the amount of operational expenses has increased from Rp.10.139.945.330 in 2010 to Rp.87.841.422290 in 2011. That is an above 80% increase in operational expenses in one year. A majority of these expenses come from maintenance and repair of the offices, as well as vehicles, specifically road vehicles. A recommendation that can be made to the company would be to move to a smaller office space, which will reduce maintenance costs. Since the company is also moving to the shipping sector, it will have to purchase ships, hence road vehicles will not be of much use. Therefore, the company can reduce the amount of vehicles in possession to further reduce the repair and maintenance costs of those vehicles.

SWOT Analysis: