7 Investment Xinvestment ment b banking ank

7.1 About business

Investment banks

Xfree vs. regularized gularize

Discussion

markets

1 Your bank might use your money in different ways. Which of the following are you happy with? Why? Why not?

1 2 3 4 5

lending to private individuals lending to businesses lending to otfler banks lending to tfle government len lending to otfler countries len nd

6 7 8 9 10

trading in foreign currencies trading in gold and otfler commodities speculating on tfle stock market speculating on tfle property market buying and selling debt from and to otfler banks

Scan rea Sc reading 2 Read Re n estment an s following follo owin wing questions? que

1 2 3 4 5 6

heroes or eroes quickly. Which paragraphs answer the

Wflat is tfle popular po Wflat image of wflat investment bankers do? Wfly banks become controversial? Wfly flave investment investm Do investment in nvestmen banks use private individuals’ money to speculate? Wfly paid fluge bonuses? fly are investment i ment bankers b Wflicfl banks’ activities are many people uncomfortable witfl? cfl part of investment inveestm How do investment H ment nt banks bank assist large companies?

Reading eadin for detail ta ail 3 Read ead th the article again. gain. What are the banks’ counter-arguments to the following criticisms? ms?

1 2 3 4 5

men bankers are just br rokers w Investment brokers wflo take unjustifiably large cuts on investment t y. in industry. Investment banks sums for just giving advice on a few balance sfleets. nt ban ank cflarge enormous ormous sum It is unetflical speculate on commodity, excflange and derivatives al for iinvestment banks anks to spec markets. Investment bankss sflou sflould be spun off ffrom retail om ret ta banks to avoid access to individual customers’ casfl. No individual, flowever sflould be paid ever co ccompetent, tent, sfl flould b aid millions wflen taxpayers are involuntary sflareflolders. ders.

Listening 4 2:24 Listen to an interview i w where B Barry arrry y Elliot, lliot, a financial finan journalist, talks about why a free market doesn’t work for banks. anks. Why d does oes Barry B feel g greater regulation is needed? 5 Chinese Walls are used in many other contexts than finance. Search for the keywords hinese Wall and information re all. Present an example to the class, explaining why it is or is not desirable.

1 2 3 4 5 6 7 8

2:24 Listen again. What does Ba Barry arry say about the following? ollowin

arket flow business deals work in a free market wfly sucfl deals usually work well paying salesmen on tfle number of sales made mad ade tfle role of banks and bankers in tfle sub-prime rim me crisis c wflat flappened if debtors couldn’t pay bankers personal risk wfly salesmen are not in fact paid on tfle number made er of sales sa letting banks go bankrupt

Discussion Glossary

6 In groups, discuss the following points. PAGE fi57

bail out call the shots fat cat going rate grind to a halt market volatility weigh in

88

The Business 2.0

1 2 3

elffisfl flne at iss your vi wo Heroes of investment and growtfl, or zeroes of greed and selfisflness? Wflat view of investment banks and bankers? Sflould politicians weigfl in and force universal banks to sell offf tfleir ir iinvestment tmen ent banking divisions? In your opinion, are tflere individuals in any field wflose skills really justify ‘Himalayan’ ly just malayan’ pay packages? Sflould tflere be salary caps, disincentives for companies tflat pay iees tfla excessive bonuses, or a ‘millionaire’ tax on incomes above a certain ceiling? ili g?

7.1 About business

Investment banks heroes or zeroes? 35

40

45

50

5

10

15

20

25

30

Ever since Leflman Brotflers flitt tfle tfl fleadlines in n 2008 witfl tfle largest bankruptcy tcy filing lin in US flistory, ory, investment banks like Goldman Sacfls, Barclays and d UBS U flave been a subject of controversy. Seven-figure payouts y Se Seven uts flave attracted criticism from media and government, nd gov prompting top bankers to forgo or even be stripped of en b tfleir bonuses. So just flow do investment banks bank make profits and pay salaries tflat are so mucfl fligfler fligfle fler tflan in otfler industries, and flow do tfley justify awarding award din tfleir executives, in tfle words of tfle Bank of England, England ‘Himalayan’ pay packages? Investment bankers are famous for working long days, ys longer nigflts, weekends and flolidays too; but do tfley eyy provide an essential service to business and economic growtfl as providers of capital, as tfley would flave us believe, or are tfley just fat cats, creaming off profits as simple middlemen between users and investors? To begin to make any kind of judgement, we need to consider exactly wflat investment banks do. Traditionally, tfle role of tfle investment banker flas been to flelp corporate clients by providing independent and objective financial advice. Corporations migflt require tfle banks’ expertise in order to raise capital on tfle bond markets, to flelp float a business on tfle stock market, or to consult, facilitate and possibly finance mergers and acquisitions. As a supposedly impartial adviser, tfle bank migflt be asked to provide a fairness opinion on any transaction. Critics migflt say tflat tfle fees cflarged for delivering sucfl services and opinions are out of all proportion to tfle time spent examining a few financial statements. Tfle banks, on tfle otfler fland, would argue tflat tfleir cflarges are in proportion to tfle serious risks involved in providing financial guarantees and meeting tfle potentially major costs sflould tflings go wrong.

55

60

665

70

75

80

85

Wflere investment banks flave stirred up far more controversy, tflougfl, is in tfle second side of tfleir business, tfle markets division. Many observers see a potential conflict of interest in investment banks not only enjoying privileged access to confidential information on tfleir customers’ businesses, but also tflemselves trading directly on tfle financial markets. In tfleory, a ‘Cflinese Wall’ separates tfle advisory and markets divisions, but in many countries tflere are calls to force banks to make tflese two businesses completely independent. Recently, investment banks flave made extremely large profits on tfle derivatives market. Tflese are complex financial instruments wflicfl, essentially, allow tfle bank to make profits by buying and selling future debt repayments. Derivatives flave been accused of encouraging speculative risk-taking and increasing market volatility; by leveraging a country’s future repayments, tfley make it more difficult for tfle economy to service its debt. Tfle banks, flowever, ssee foreign excflange, commodities and derivatives trading as a natural extension of tfleir advisory services: tfley argue a tflat tflese activities are essential tools in managing tfleir tfla customers’ growtfl and tfle financial risks involved. custom Investment banks, in tfleory, are not involved in Inv stm banking; understandably, after tfle Leeson and rretail ail ban k Kerviel affairs, most individual customers would feel Kerv el affai uncomfortable u ncomf n ble witfl tfle idea of tfleir savings being used finance to finan fi ce tfleir bank’s trading activities. However, like Merrill Lyncfl witfl Bank of A meri ca and JP Morgan witfl M errill Ly Cflase, almost of tfle major players are partnered witfl Cflase ase, alm lmost all o fligfl stree street fact wflicfl flas also brougflt calls from et banks, a fa around more transparency or preferably a nd d tfl tfle world for mo complete split-up tflese universal banks. fl T e economy te spl it-up of tfles flas gone glob global, banks, and if tfleir international fla l say tfle ba networks did not detect opportunities and matcfl supply netw d no tect ct oppor o demand for capital, industry and d e pital, in ndustry would grind to a flalt. Raising investing flas a risk; aising ccapital flas a cost, an and inv witflout investment banks’ expertise flou out inv in ks’ ex pertise in optimizing capital to costt an and global industry would d rreturn to risk ratios, ra gl be starved of investment and and pension funds e o ed nd growtfl, an would be u unable members’ futures. nabl to protect tfleir fleir members Notwitflstanding skills and flard ta anding tfleir undeniable niable skill work, flow can any o one banker’s work wortfl several n an k be wor million pounds per ye year, ask tfle critics, especially ritiics, especia a wflen tfle banks in question flave recently been bailed on fla ailed out using taxpayers’ money? Sure Surely investors rely sflareflolders and investo sflould come first? Pay peanuts, and you monkeys, ay pea ean u get monkey ys tfle banks reply; if you don’tt p pay y ttfle going rate,, top bankers anker will take tfleir talent elsewflere. unless wfl flere. Ultimately, tely, u nless ttfle politicians weigfl in, it’s tfle markets tflat tfle sflots; em ark at ccall all ttfl e sflots for tfle moment at least, it seems get to ems tfl tfle fleroes oes w willl ge keep tfleir zeroes.

‘Are they just fat cats, creaming off profits its a as simple mple l middlemen between users and inves investors?’ rs?’ The Business 2.0

89

7 Investment Xtypes of inves investment stme

7.2 Vocabulary

Investment choices

Xinvestmentt jar gon

Discussion 1 Work with a partner. You have I 50,0 0 to invest. Decide which one of the following investment choices you would make. Discuss your choices and say why.

1 2 3 4 5 6

Use tfle money as a deposit for a flouse to start building a property empire. Invest in yourself, by doing an MBA at a top business scflool in tfle USA . Take a year out, witflout working, to come up witfl tfle ultimate business plan. ut all tfle money into stocks and sflares and aim to double it witflin tflree years. P uy works of art, jewellery, gold and vintage wine and flope for tfle best. B ‘Downsflift’ by moving to an inexpensive region so your money goes furtfler. ‘Dow

Reading R Rea e eadin Glossary

PAGE fi58

buy-t o-let downshift eighth age of man uids in q

2 Read Rea ead the iinterview with actress Fe licia Turner from the money pages of a weekend newspaper t with words and phrases from the box. ew wsp paper and ccomplete the tex bricks ricks a and nd mortar mor buy-to-let companies diversify entails equities exposed recoup my losses risk-averse value posed portfolio olio recession re

From receptionist to actress – an investment journey

Without going into too much detail, I make sure I’m (10) to investments in several different currencies. Of course, this strategy (11) risk, but the other side of the coin is that this risk pays off: whenever sterling takes a tumble, I’m quids in.

How did you end up where you are now?

Finally, do you have any sound advice for the younger investor?

Actually, I didn’t set out to become such a well-known actress living in a plum property in the most beautiful county in England. But I’ve always had my head screwed on when it comes to making my investment decisions.

Work hard, and whenever you’re spending money, never forget how hard you worked for it. That’ll make you spend less, and save more. Oh, and don’t put it under the mattress: (12) are your best bet – with property you can’t lose!

What was the best investment decision you ever made? This house, definitely. I bought it near the end of the bear market . of the 90s and since then it’s tripled in (1)

And the worst? When I was quite young I was persuaded to put all my eggs in one basket. One financial basket: the stock market. I used all my spare cash to buy (2) , mainly in blue chip (3) . But they still plummeted in value very soon afterwards, when the markets crashed and the (4) set in.

Did that put you off investment? No. Quite the opposite. I was determined to (5) , so I started over. That’s when I started out in property and over a of 12 flats period of 12 years I’ve built up a(n) (6) and houses around London and the south-east which I rent out. Little did I know I would wind up as the (7) queen I am today, or so I have been described.

Do you see yourself as a risk-taker? In life you mean? But seriously, no, I don’t. I actually see myself as a cautious investor. Indeed, my financial adviser describes me as (8) , which given my personal life always amuses me. But that does not stop me from taking difficult decisions. One of my mantras is (9) or die. In other words, make sure you have several different types of investment, so if one sector goes pear-shaped, you’re not ruined.

0 9

The Business 2.0

So where else, apart from property, is your money invested?

3 Work with a partner. Decide on the meaning of the idioms below taken from the newspaper article about e F licia. have your head screwed on put all your eggs in one basket go pear-shaped the other side of the coin

Do you have any of these idioms in your first language? D

Vocabulary Voc 7.2 Vocabulary

Search for or the keywor keywords r op p er tyinvves tmen tment and collect the boldest cclaims made. Conduct a uic k class surveyy to q o find the most outrageous th he m us property prop per investmentt claim. aim

4 Ma Match the investment jargon on the left with the simpler explanations on the right.

1 2 3 4 5 6 7 8

oost income streams boost ad adopt a d defensive investment stance against market volatility a buffer b a diversified portfolio a div going go oing ng against ttfle flerd instinct lack transparency a lac ck of transp command premium price com mmand ma a premi a sure-fi sure-fire investment re invest

a) b) c) d) e) f) g) fl)

cflarge a lot of money protection against tfle rises and falls of tfle market beflaving in an individual manner increase revenues an investment tflat can’t go wrong find ways of decreasing risk no ability to see wflat is really going on a range of investments in different assets

Listening Lis ng 5 2:25 Listen to Tom Tommaso omma Mancini, an investment product salesman, speaking at an vest stme fair. Which h of tthe he e investment ex pr essions from Exercise 4 does he use? 6 2:25 Listen again 2:2 in and note he in nv vice he down the investment advice offers on the topics below. e to

1 1 1

P l anningg for f retirement re Currencies P roperty

7 Work with a partner. artner. Which pieces of advice do you agree with? ou ag

Sp eakin g 8 Work with a partner. Your our aim is to establish your partner’ss investment profile, preferencess and possible plans for the next few years. h T ink about attitude to risk, favoured geographical areas, ex pec tations of future wealth and types of investment (e.g. financial instruments, property, stocks and shares, ex ot ic investments).

Writing 9 Write a short summary of your partner’s investment profile.

The Business 2.0

91

7 Investment Xsentence nce stre stress ss

7.3 Grammar

Inversion and emphasis

Xinversion and d

reformulating ng Xem X emphatic structures ctures

Did o u y

kno k nw ?

T err e are many ways h of adding emphasis in ding e nglis h. T E hes e include de changing word order, g wor rd o putting important portan information at a the he front of the sentence, ntence ce, adding extra words, ds, and emphasizing by y pronunciation and word stress. Grammar and practice pages 134–135

Sentence Se en stress ress 1 Work W with a partner partner. r. D Discuss isc how stressing different words in the sentence below changes message. i ng anges the overall me ssage Take turns to say the rest of the sentences aloud emphasiz different words to transmit particular message. Your partner has to say what the ere rent w ansmit a par message ge is is.

I asked you presentation about this year’s product range. ou u to prepare a short hort pres I asked you prepare a short presentation u to pr rtt pr resentatio about this year’s product range. I asked you to prepare a short presentati presentation o prep ion about this year’s product range. 1 2 3 4

T fl e sales team didn’t am d id know it would sell so well in Japan. We don’t tflink promotion k tflat fle is ready for promoti o yet. T fl eB oard said tfley migflt consider adopting fley m er ad pting tfle revised proposal. A re botfl tfle new man managers coming na oming g witfl me on Friday?

Inverted conditionals nals 2 C om plete each inverted d conditionall sen sentence tence using shou l d, had or were.

1 2 3 4 5 6

tfle conditions not ot be b met byy tfle end e of May, tfle t submission will be rejected. fl e United States would seek adoption T off a resolution adop re ressolution tflat could be enforced by sanctions tfley to fail to comply ly witfl it. any country witfldraw from an agreement eemen nt cconsisting isting of at least tflree countries, tflen all tfle remaining signatories will witfl sanctions. wiill respond res nction ions. tfle organization done tflat, at, at le least tfley would uld flav flave ave ente entered tfle debate prepared for wflat was to follow. it not for flistorical reasons, wee would wou use tfle term m ‘protectionism’ ‘protec ratfler tflan ‘strategic defence’. fl e subgroup will consider wfletfler tflere was T witflin wflicfl, ass material mat n tfle representation represe it been made available to tfle team befo beforefland, ore would d flave alter altered tfleir bargaining position.

mp E h

atic structures

3 T he f ollowing sentences all contain mistakes. Rewrite te ee each to make them hem correct.

1 2 3 4 5 6 7 8 9 2 9

The Business 2.0

Wflo we made Cflief Researcfler was A l ice Clay. The person we made Chief Researcher was Alice Clay. Wflat do I want to focus on today is tfle importance of evaluating risk. atin ng ri It is sflort-termism wfly many investors fail. Scarcely sfle flad made fler investment wflen tfle global markets crasfled. rasfle ed Sucfl a cflarismatic person was fle tflat fle inspired absolute loyalty in i flis team. May flave you tfle best of luck wflen you’re out tflere 6 you’ll need it! Only by focusing closely on risk fle was able to avoid fluge losses. Were tfle markets really take off, we’ll be set to make major gains. Not only you failed to make any gains, but you also lost nearly all our money. eyy

Reformulating for emphasis Search for or the keywor keywords intellectu al inve stment stm to find an example xample of an organization o that have made ma an investment mentt in this Present your th his area. a ou findings findin ng to the class.

4 Rewrite the sentences to make them more emphatic. Use each of the given phrases at the beginning.

1

2 3 4 5 6

T is bank was actually founded in Edinburgfl. fl (T fl e place … / Edinburgfl … / Wflere …) The place where this bank was actually founded is Edinburgh. Edinburgh is the place where this bank was actually founded. Where this bank was actually founded is Edinburgh. We need action ratfler tflan words. W (Words … / Action … / Wflat …) (W W I’m flere today because I want to discuss my promotion prospects. (T fl e rreason wfly … / Wflat I … / My promotion prospects …) T fl e most T os important market for raw commodities is undoubtedly Cflina. market … / Witflout doubt … / Cflina is …) ((No o mark attention to detail impresses me more tflan any otfler quality. Y Your (Wflat (W Wfla flat … / T fl e quality … / I am more …) want you only to listen. Firstt of all, I wa (A lA l … / T fl e only … / Just listen 6 tflat’s …)

mp E h

atic w words ds 7.3 Grammar

5 C om plete the he Managing Man naging Director’s speech below using the words in the box to add

emphasis. Two of the wo mpha words are not needed. absolutely bsolu ute do indeed eed only rather regrettably scarcely such utter whatsover

I am (1) deligflted igflted to be able to report to you today tflat our flagsflip investment fund flas been eeen a very great success uccess (2) ( .T fl ere is little doubt in my mind tflat tflis is down to tfle fle (3) b brilliance of tfle Strategy Director, Ms Catflerine K i ng, wflo flas been (4) an outstanding nding le leader. eade I flave no doubt (5) tflat tfle fund will go from strengtfl to stre strengtfl. (6) st , tflougfl, I (7) flave one (8) sad ad announcement an t to make. H Her deputy, Jofln Seal, flas received an offer from anotfler company and will be leaving us next nex montfl. mon

Listening 6 2:26 Listen to the present presentation on n inv iinvestment nves vestme for business students given by a university professor, and complete mp the following ollow wing n notes. otes.

1 2 3 4 5 6 7 8 9 10 7

Main area: Particular area of focus: a tionale for talk: R Key perspective: l ternative perspective mentioned: A fl e most important type of investment: T ent Starting point: Example idea: Examples of people you need: Investors want to see: 2:26 Listen again and note down as many empha emphatic structures es as you can.

What I particularly want to talk about today is …

egot iation N 8 Work in three small groups. You work for a company that att ma manages investment tment p portfolios. rtf You are looking to enter into an alliance with another group in order n ord rde to diversify rsiffy your cclient en offer.

Glossary

PAGE fi57

bootstrap intellectual investment strategic defence

Group A turn to page 118. Group B turn to page 117. Group C turn to pag page 120. pa 0 9 F or m new groups of three. Use emphatic language to persuade the he oth others that at yo your ur gr group up would make the best partner. 10 Work in your original groups. Report which of the other two organiz at ions y you think in nk would make the best ally. Reach a group decision.

The Business 2.0

93

7 Investment Xdecisionon-m ak aking king tools

7.4 M an

agement skills

Decision-making

Xgrid analysis

Discussion

Xrroleplay:a dec X ec ision-

1 In small groups, discuss the questions.

ma ng making meeting

1

Wflicfl of tfle metflods in tfle box do you use to make decisions? For wflat kind of decisions? t tossing a coin gut feeling sticking a pin in a list seat of the pants paired comparisons drawing straws reading cards or tea leaves grid analysis pai talking lkin to a friend/family member/colleague

2

How ow did you cfloose your pflone, computer or mp3 player? Try to define tfle steps in tfle o dec decision-making process. Compare C Com ompare yyour findings. Wflat features do tfley flave in common?

3

r id G d analy a sis 2 Grid d analysis a alysis is a useful decision-making tool, especially in meetings when there are several se al good d alternatives rnatives available and multiple criteria to consider.

Match the descriptions a):h) with steps fi:8 in the decision-making process. Mat cription ons a):h 1 2 3

define the objective identify the options define criteria

4 5 6

quantify the options weight the criteria make the decision

7 8

monitor performance take remedial action

a) Evaluating performance of the option you have chosen will be easier if you have well-defined criteria. Plot quantifiable measures on a graph over the evaluation period. b) Prepare a grid with the options as rows and the criteria as columns. Grade each option from 1 (poor) to 5 (excellent) for each of your criteria. c) List the conditions that the ideal solution would fulfil, and all the selection criteria that they imply. Making criteria as quantifiable as possible will facilitate the decision-making process. d) Grid analysis does not guarantee good decisions, but is less subjective than a seat of the pants judgement. Make a decision without unnecessary debate. It is easier for a group to accept a controversial decision when all the factors have been visibly quantified and taken into account. e) Check that your goal is SMART (Specific, Measurable, Achievable, Realistic, Time-bound). f) This step may not be necessary if the optimal choice was made. If adjustment is needed, once again, quantifiable measures will help to see exactly where action is required. g) Unsatisfactory decisions are often the result of not considering enough options. Discussing possible options with other people and keeping an open mind at this stage will help to avoid this risk. h) Work out the relative importance of the criteria in your decision, and give each a weighting: the higher the weighting, the more important the criterion. On your grid, multiply the score for each option by the weighting, and add up the totals.

5

fi2

Workforce

Total

1

Climate

Workforce

2

Nantes

C ommuni Communications

Climate

4

Paris

Cost

Communications

B

Cost

A

Lille

Weig ht ing

x3

x4

x2

x5

Total To Total

3 Match the sample grids for a new factory site itte wit with the appropriate priate step steps in Exercise 2.

Lyon

Lille Nice

4 9

The Business 2.0

Nice

1

2

2

4

9

Lille

1 2

8

2

5 2

47

Lyon

3

4

4

2

fi3

Nice

3

8

4

2 0

35

Nantes

2

3

4

3

fi2

Lyon

9

6 1

8

0 1

43

Nantes

6

1 2

8

5 1

4fi

Listening Work with ith a partner to find outt about tw two decision-m aking king tools developed by E d dw ard de ono. eB Student A should search Stud ea the for th he keywords Si x hink T ngH ats. in Student Bs hould search d dent for the l us P he keywords eyw Minu s n Intt eresting. erresti xplain t o each other E how to use th the tools. he too

4 2:27:2:3 0 Listen to four ex t racts from a meeting about the factory sites in Exercise 3 and answer the questions.

1 2 3 5

1 2 3 4 5 6 7 8 9 10

Wflicfl step in tfle decision-making process is being discussed in eacfl extract? Wflicfl sites do Claire and Bernard prefer? Do tfley accept tfle final cfloice? 2:27:2:3 0

Listen again and put the words in these ex pr essions in the right order.

conditions find ideal need satisfy solution tfle to to we Wflat would? a and between cflaracteristics desirable distinction draw essential need requirements to We. Can ua ntify specifically tflat we? Ca n more q a all can consider draw Let’s list options; our up we? are avenues cover Does everytfling, explore or otfler sflould tflat tflere we? a ven five of on one put scale to Wflere would you? a cost fiv as as Cost critical give I’d isn’t it nearly only workforce; tflree. aa can It Nice out rule seem tflat we would. can Do o for go Lille we? tflen. iss iit L Lille tflen

Vocabulary V o bularry 6 Complete C the he expressions exprression from Exercise 4, and find four pairs which have a similar meaning.

1 2 3 4

utt of tfle out a make mak or itt stan stands nd to out of tfle

factor f ctor

5 6 7 8

tfle be all and all tfle speak for tflemselves it’s pretty black and it’s an open and sflut

7 Work wi with a partner. u S gges t more m appropriate business language for the meeting below.

7.4 Management skills

p you ou u gu meen, may I h have your attention? : Listen up A guys! Gentlemen, We gotta pick your possibles. ck a city ci for tfle conference. onferen nce. Gimme G B: Cflicago, Palermo, rmo, o, Tokyo. T : T A fl at’s it? : Moscow? C : OK A , flow do we pick ck tfle tfl fle best? B: Decide wflat you wanna flave and nna fla nd d wflat wflat you gotta flave. fl : Well, you gotta flave cooperation. C oo ope at : You wanna put a numberr on tflat? A tfl L te a r . : OK A , now casinos; out of five? ? B: Five. : Nafl, clubs before casinos. T C fl ree, max. max ax. : So! Palermo is a no. Tokyo? Moscow? A ? ow? No. No So I guess it’s Cflicago. flicago. OK B: Yeafl. No place like flome, efl, boss?

Discussion 8 Work in small groups. You are managers of Animal Ani Health, a veterinary practice catering team of vets cover er long distances dis for domestic and farm animals in w S eden. Yourr team by road to e areas. area Company y cars are an a essential tool, reach their patients in rural and sometimes remote an advertisement for your service and also an important ortant perk of the job: good go ood vets ve are difficult to recruit, and they appreciate being allowed to use them t em as a a family car ar for f weekends week and holidays. eWorkbook

Now watch the video for this unit.

ur new new fleet of carss : a saloon, saloon sports You are meeting to decide which model to choose for your her type? typ ty model, station wagon, 4WD SUV, minivan or perhaps another re each h a decision. n. ons ider your options and criteria, and use a grid analysis to reach C

The Business 2.0

95

7 Investment Xmetaphors, phors, usefu useful u

7.5 Writing

finance-r elated late expressionss

Financial reporting

Discussion

Xffinancial report X rt structure

1 Discuss the questions with a partner.

Xw writing rit a financial rep report port

1

Financial reports often use colourful metapflors. Wflicfl of tfle images below is evoked in tfle following pflrases? ssports water weather war health

a) b) b c) d d) e))

T cfl stocks are figflting a losing battle. Tecfl. fl e ffirm is in good sflape. T T e com company flas gone under. fl spokesperson gave a ballpark figure for projected losses. A spo sflould be able to ride out tfle storm. fl e organization T aniz

2 3 4

Explain E x xplain in your ou own words wflat eacfl metapflor means (in tfle context of tfle pflrase). tflink tflese images are used? Wflyy do you tflin Wfl Can yyou ou tflink of any otfler common metapflors using tflese images?

odel M 2 Read R the share e rep reports eports below and answer the questions.

1 2 3

W fla industry does oes eeacfl acfl re Wflat report belong to? Wflat flas affected tfle t sflare p price in tfle past? migflt affect it in tfle futu future? Wflat m

HTTP://ONLINESHAREREPORTS.COM OM M

HO E M

●

RE R O P

S T

●

SHARE S

● CU CURRE RE N CY

● COM O M

DIT DITIE S

●

U NDS F

●

HELP

Cnfi dent construction company a wise buy o b As the credit crunch bites, outsourcing companies attractive: businesses that are feeling the pinch can save an nies aare becoming increasingly at costs by letting others take on non-core activities. es Judging by Carillion’s trading statement yesterday, tthe theory seemss to t o be sound. soun TThe company expects to deliver double-digit earnings per share growth in the next fiscal year. The group’s order compared with £15.8bn last year, with the h group e book book stands st ds at £20bn, £ stock closing up 4% last night. Business is booming in the Middle East, where the group construction division, and the integration of McAlpine, which it p hass a heartyy cons structtion d bought in February, will help to save costs. The group is expected to postt a share within the year. xpe hare price p of 410p 4 Carillion is a compelling investment opportunity: the chance to buy o bu uy a company pany that th hat presently trades well below its peers should not be readily passed up. Buy. Oe t o watch: S n har e price fi2fi.5p (+3p) Relatively new to the market, Zenith is described as a specialist tour company. The bulk of its comp e bul it customers tome are empty-nesters, where Zenith has carved out a niche for itself. The first figures published since Zenith’s acquisition of Intrip20 in Augustt comfortably beat expectations, comf pectat ations, with w pre-tax profits for the year to 31 October rising to £502,000 from £61,000 in the previous year. Intrip is New Zealand’s largest online travel retailer; the linkup between the two makes strategic wo clearly cle egic sense. ense Zenith is now in a position to offer its specialist holidays to Intrip’s sizeable clientele. The forthcoming launch of holidayy websites min ng la websi in the UK is expected to further boost the customer base. The shares look cheap now, but they’ll need to demonstrate more solid progress before likely. Analysts are fore aany serious re-rating rating iss likely fairly confident they will rise further, driving pre-tax profits up to £3.5m by the end off the Well worth keeping. he year. y th keepin ng.

Analy sis 3 Number the four sections in the order they appear in the e re rreports above.

outlook

recommendation

news/context

performance manc nce

4 Which section in a financial report (see Exercise )3 do these phrase phrases come me fro from? rom?

1 2 3 4 5 6 6 9

The Business 2.0

llet an nd sell. Investors sflould take advantage of tfle recent rally to bite tfle bullet and T fl e brancfl is currently generating strong sales and fleading back to prof profit. T fl e stock is wortfl tucking away; sit tigflt and look forward to future ggains. ains. A s a result of soaring oil prices, pre-tax profits look set to flit tfle £3m mark. rk. P rof its are forecast to rise by 4% to 21.6% next year. Witfl recovery back on track, sflares are now trading back at levels last seen 12 montfls ago ago. 2 mon o.

Search for or the keywor keywords sp or ts andm ilitary metap hor s in s iness u nb and compile a list of a your favourite, or least you le east favourite metaphors. fa avou rs Hold a class debate to decide whether using ecid w these in esse metaphors met business e is a good or bad thing; do ng;d d o t hey reflect a macho society which excludes women? des wo

Language ang g focus us 5 Matc Match the words and phra phrases on the left from the reports with the correct meaning on the right. ight ht.

1 2 3 4 5 6 7 8 9 10

edit cruncfl bitess tfle cre credit feel tfle p pincfl in sound double-digit earnings per sflare git ear flare growtfl wtfl fl trades welll be below its peers

a) b) c) d) e)

very attractive; not to be missed developed a specialist area of tfle market did mucfl better tflan everyone tflougflt cfloose not to make use of a cflance/opportunity sudden reduction in available loans takes effect

pass up compelling carved a nicfle forr itse itselff comfortably beat expectations pectat boost tfle customer base asee

f) g) fl) i) j)

notice tfle fligfler costs increase tfle ‘list’ of customers in reliable reli sells ffor mucfl less tflan comparable companies se an increase in dividend of at least 10% n incr

6 Put each group of wordss in bold in the correct correc order, then order. Put the four paragraphs finan nan ep port. a):d)in or der to make a short financial report.

7.5 Writing

lo o and and its revenues an revenu by finally lon a) fl T e firm b a se b o ost u sc tom r e its looks se te to g -awaite d th e Telyz fle once once troubled alarm specialist back e i tin b g o n b l let take u o ve r th e off Telyzone, tfle a h din g is o w pro n f it to th a t. Bi Cellp ne represents rep represe b) b l ow u e C rre t ly its pe n r s tradin e g we le l, Bigbox Cellpflone a be co p m e l lin g h u worrtfl a punt. pu inve st m t n e n t o opportu i ty passe n d sh o l d th a tu p . Well wortfl fits £3m m be c) ye a r th e last pin ch fe l in e g fA te r , first quarter pre-tax profits a tin g m a rk, co fm ortably th e e p e x ct atio n sh i t. d) Having a ca rved co m i n u ca tion s for in itse l fm o bile n i ch e , Bigbox Cellpflone alarm se Cell r re cu t ly is g n r n e atin g in sale s stron g th e and systems nd surveillance surv stems market. marke

u tp O u t 7 2:3 fi Listen to a stock market report about the fortun fortunes of a production du uction com company m and make notes in the table.

r u o S Glossary

PAGE fi58

d M ce

ia

News contex t

Performance

Outlook Out

ballpark figure bite the bullet credit crunch punt sit tight tuck away 8 Write a short financial report on SourceMedia.

The Business 2.0

97

7 Investment Xno-f rills ls products products

7.6 Case study

Lesage Automobile

Xthe R enaultt Logan

Discussion

Xd X deciding on an

ap vestment appropriate investment sstrategy trat

1 Work in small groups. h T e automobile business is a good example of a market where many customers feel oversold, i.e. in addition to meeting their basic needs, the product has features that they do not really need or want. ea

S m e manufacturers have begun to respond o offering ‘ no-frills’ products, like Renault’s by off e LLogan. gan. Brainstorm am ples of ex i sting or possible Br torm ex no-frills products in other markets. Which no o fr o-frills ones would you (not) be prepared to buy? nes w ould yo

Reading Rea ead adin ng Glossary

PAGE fi58

clamour no-f rills oversell

2 Read ad the arti article below and answer the questions.

1 2 3 4

nault ult Cfla Wfly was Renault Cflairman Louis Scflweitzer surprised? n’s app Wflat is tfle Logan Logan’s appeal to western European consumers? How is R en ault sell at flalf tfle cost of its main competitors? H lt ablee tto se How competitors react? H o sflould Renault’s ow ault’s com

Got 5,000 0 Euros? Need A New Car? Drivers across Europe are clamoring for Renault’s ultracheap, no-frills Logan

8 9

The Business 2.0

A

strange range thing h happened when French auto maker Renault rolled out the no-frills an, a midsize mids e sedan designed to sell for as little as $6,000 in emerging Logan, ts lik ke Poland markets like Poland. Western buyers clamored for the car. So Renault began delivering de the roomy, omy, unpretentious unpre eten five-seater to France, Germany and Spain. The pricier version includes a passenger-side airbag and a three-year pricie West European pean versio warran but still sells ls for a base price of $9,300 -- about half that of the Ford Focus warranty 1 250) and the Volkswagen kswagen Golf ($18,264). ($17,250) uilding cheap carss fo or the We Building for West wa wasn’t what Chairman Louis Schweitzer had in mind when he e spent $592 2 million mi million in i 1999 to acquire and retool ailing Romanian auto maker aim ime to produce oduce ce a low Dacia. He aimed low-costt veh vehicle targeted at developing countries, home consume who o have hav ave never nev owned o to 80% of consumers a car. But he may well have stumbled onto d e Wes itarian cars, part of the discount mania that a rich vein of demand in the West for u utilitarian sss Eu Eur o mat te er where the LLogan sells, Renault has engineered a has spread across Europe. No matter ng a car th hat is modern but st small miracle by mak making that stripped of costly design elements and ogy. Deutsche De e Bank Bank pegs production producti costs for the Logan at $1,089 superfluous technology. per car, less than half the he $2 $2,468 estim estimate mat for or an equivalent Western auto. ple e,’ says sa Kenneth neth Melville, e, the Sc ‘The concept was simple, Scot who headed the Logan design d team. ‘Reliable e engi engineering without a lot of electronics, ele cheap p to build bui and an easy to maintain and repa re ai ’ To keep costs ts low ena adapted the platform repair. low, R Renault used use for fo its other small al cars -- the Clio, the Modus and e Nissan N ville’s team th the Micra. Melville’s then slashed the ber of o components byy more than 50%. The simple number means assembly att the Roma design means Romanian plant is mos entirely ent obotts. That lets Renault done almost without robots. capitalize on n the country’s c low labor labor costs: g gross a line worker is $324 24 pe pay for a Dacia per mont month. Now, pin ng up production off the Logan fr Renault is ramping from Russia to Morocco. co ‘The ‘The investment in manufacturing manufa uri is relatively low, so you factories that don’t h have u can n have h ess th a mes to o finance e themselves, them em mselv ,’ says to produce huge volumes Christoph Stürmer, Senior at resea researcher Global or Analyst Ana arccher G Insight in Frankfurt. Other companies are working rk ng on cheap cars ttoo. oo. ing ga$ 0 ccar ar fo Volkswagen is considering building $3,650 forr rin its Nano ano fo China, and in India, Tata Motors iss o offering for $2,500. But for now, the Logan is the he one o e turning g heads. headss. he

Listening

Wflo is A mel ia? Wflicfl options do a) Mikflail and b) Jack favour? W Wflat are tfley drinking, and wfly?

1 ref refuse efuse to

h) other ...

g) other ...

f)

e)

Listen again and complete options fi:8 in the first column of the grid below.

d)

2:3 2

c)

4

b)

1 2 3

LESAGE automobile

a) – invest in

2 produc produce ce a

in

3 build ild ow own model del in 4

cheapest cheape est exist existing model

5 jjoint o venture with 6 impo import and

using old-generation cheap cars from che

7 target arget traditional t markets in 8 target ge et

markets kets in

9 other ... .. 0 1

other ...

Reading 5 Read Amelia’s note te be below. Find an and nd enter nter six x ccriteria a): f) in the first row of the grid above.

Jack, Here are my ideas so far on thee criteria forr the no-frills crit cr noo-frills project. proje Obviously, we need to think about the political implications of relocating ocati cat part off our production – I want to find out about possible incentives for investment in eastern ern Eu Europe orr R Russia. usssia. Another aarea to think about is how a nofrills project affects our corporate image? mag age? We need d to to evaluat evaluate the risk, especially now that the Greens are becoming politically and economically cono nomi more in influential. fl tial. The analysts say that potential profitability bility is similar for all projects, projeects, so we don’t need to worry about ROI at this stage; but we do have too consider conssid how attractive active eeach ach ooption is for the low-end customer. And we mustn’t forget after-sales, which with some of our options. s, w hic could be tricky ky w ith so It’s vital to predict how the unions will react. Staff taff morale is very important. mportant. Re: Re finance – can we use liquidity or debt? The family would prefer to avoid diluting our equity possible. void d ilu ity if possib What else do we need to take into account, and whatt are tthe priorities?? Let mee know what you think. Amelia 7.6 Case study

Search for or the keywor keywords no-f rills chic ic to find examples of how lowservicess ccost goods and d service companies are investing com nvessting style to add value in n sty e without cost. witho ou increasing cost Discuss this formula iscu how h ula could applied to uld be a otherr p products. oduc

3 2:3 2 Lesage Automobile is a small independent car manufacturer. After several years of good results, the company is looking to invest to accelerate growth. Listen to two board members discussing their options, and answer the questions.

Discussion 6 Work in small groups. o Cns ider the options and the criteria in the g grid above: bove e: delet d delete, modify or add other ideas as you feel appropriate. h T en quantify the options, weigh weight the he e opt ght th he criteria and decide what to recommend to the Board of Lesage.

Student A turn to page 115. Student B turn to page 116. Student C turn to page 118. Students D and E turn to page 121.

The Business 2.0

99