FIN3CSF- Case Studies in Finance

Task:

Your current role is the Manager of the Finance Division of Fortescue Metals Group Limited,and you report directly to the Chief Financial Officer (CFO) of the company. The CFO has requested you to attend a strategic retreat being held by the company to present to the Senior Leadership Group, including the Chief Executive Officer (CEO) and the Board of Directors, on the current financial policy platform of the company, the nature of the linkage or association between these policies adopted by the company, and how they integrate to influence the operating and share performance outcomes for Fortescue Metals Group Limited.

Fortescue Metals Group Limited (FMG) is a leading iron ore production and exploration company which operates in the Pilbara region of northern Western Australia. The company is the fourth-largest listed resources company in Australia, behind BHP Billiton Limited, Rio Tinto Limited and Woodside Petroleum Limited, and the largest pure-play iron ore mining company listed in Australia. The company currently has two primary production sites in operation, namely the Chichester Hub located in the Chichester Ranges in the Pilbara region comprising the Cloudbreak and Christmas Creek mining projects, and the Solomon Hub, which is located 120 kilometres west of the Chichester Hub and comprises the Firetail and Kings Valley mines. The company’s current operational objective is to achieve iron ore production of at least 155 million tonnes per annum (Mtpa), and it has undertaken an aggressive expansion program in the last decade in pursuit of this objective. The iron ore produced by the company’s mining operations is transported to their port facilities at Port Hedland and is shipped for spot market or futures contract trading in a number of overseas locations, but predominantly China.

Required:

The CFO has requested you to submit two documents in preparation for the strategic retreat –

1) a PowerPoint presentation that will be presented at the retreat

2) a Background Analytical Report providing supporting calculation and analysis information. 

The presentation, prepared employing information from the annual report documentation and any other documentation or sources of information considered relevant, is required to identify and outline the following aspects of Fortescue Metals Group Limited’s current policy platform and operational activities and performance:

The nature of the firm’s working capital management policies. Focus should be on overall current asset investment and financing policies, rather than the company’s adoption of policies relating to specific current asset categories, such as inventories or receivables.

The determination of the costs of the various sources of costly or interest-bearing financing employed by the firm and, from this, the firm’s overall weighted average cost of capital (WACC).

The nature of the firm’s capital structure determination policy, including identification of specific policy adoption or usage if relevant, whether the firm appears to have target or optimal capital structure ratios, and the determinants of the firm’s capital structure choice.

The nature of the firm’s earnings distribution policy, including the type of dividend policy employed if relevant, whether the firm has a target dividend policy or payout ratio, and the influence of taxation or other relevant elements associated with the firm’s overall earnings management and distribution practices.

The nature of any association or relationship between these various corporate financing policies employed by the firm, and how this may relate to Fortescue Metals Group Limited’s share and/or accounting performance outcomes, and any other key drivers of the firm’s performance outcomes.

These presentation documents should be submitted to the CFO by 6.00pm on Apr 23 th 2018, via the FIN3CSF subject LMS site. This case study will represent 20% of the final assessment for this subject. This case study can be submitted either individually or in a group with up to a maximum of four members. The maximum word limit, excluding any figures and calculations is the equivalent of 500 words per team member, so a case study completed by a team of 4 should be a maximum of 2,000 words. The PowerPoint presentation and background documents should be prepared in a professional manner, be informative and interpretable by an audience with reasonable general finance knowledge, and reflect creativity and thought about the most appropriate way to present  the information. The PowerPoint presentation should be a maximum of 15-20 slides. The Background Report should provide supporting calculation and analytical information, including any assumptions made, to expand on the information and conclusions provided in the presentation.