BUSN 6070 Management Accounting

Chanchal Malhotra

Julian Warden Ahmed Kamal

Project Work. Company Analysis.

The objective of this report is to explain and analyze the performance of SeEducation Public Company Limited from a managerial accounting perspective and
offer recommendations for improvement. This study will incorporate an overview of
the company and competitive landscape, a wider environmental analysis and a
deeper look into the financial results and company architecture.
Se-Education Public Company Limited
The largest distributor and second largest Thai publisher the company can be
divided as a book and magazine publisher with sales volume sold through local
bookstores across the country, a distributor supplying local bookstores with both
local and international product, and a chain bookstore owner with 507 branches
and highest sales volume in Thailand since 1999. Se-ed is also the main
shareholder of PlearnPattana School, a private school with 1,200 students
ranging from kindergarten to secondary and the owner of Se-ed Learning Centre,
a chain of 26 franchise private language schools, teaching maths, science and
English.
Annual Sales: GBP 112 million. Employees: 2,653 (Book center staff 1,653)
Vision: Make Thais Smarter through the provision of easy and convenient access
to knowledge.
Books: Publish 1,500. Distribute 45,000 from 462 publishers.

Competitive Landscape
Se-Education is the largest book distributor, book retailer and second largest
publisher. There is no competitor with an exact matching portfolio of products and
services. However, Aksorn Education, a schools publisher, takes first place in
publishing volume with Patanakhunnapabwichakarn (PW) Co.,Ltd in third place.

Close retail competitors include Naiin with 169 branches, Asia Books, B2S, DK Today
and Kinonuniya bookstore chains in addition to the tens of thousands of
independent bookstores around Thailand.
Supplying books to 6,200 stores, close distributor competitors would include DK
Today and B2S.
There is a recent trend for publishers to expand the educational solutions focus on
their portfolio, offering schools and institutions packages consisting of teacher
training, blended learning solutions and hardware solutions. In addition, there is
increased investment in ebook departments to provide customer solutions for
tablet, mobile and other hardware requirements.
CSR Practices
Se-Education set up a CSR department in 2009 to align CSR with the corporate
vision. Activities include the donation of books to rural schools, donation of movies
under the English mate program, book and financial donations to libraries, training
for teachers and the production of inspirational CDs. Internal initiatives include
employee care and safety programs and initiatives to save resources such as power.
A visual representation of the CSR message is shown below.
In 2011 the company joined the Collective Anti-Corruption, a group of seven leading
organizations including the Thailand Institute of Directors. Every employee is
required to acknowledge the internal Business Ethics Guidelines. To limited the
possibility of underhand transactions, very few employees are able to carry cash as
schools and other customers remit cash through the Se-ed website.

Organizational Structure (Profit and Cost Centres)

The profit and investment centres are managed by the managing directors and the
executive committee (blue). From the below chart, it is clear that the 14 divisions
below are allocated as individual cost centres where divisional management are

given objectives based on activity targets. There is no ownership of PL at divisional

level.

Self-interested Behavior and Agency Costs

Three directors, J. Runcgsrithong, R. Chamrongraithan and T Chitisoraruth own a
total of 28% of shares. It is noticible that R. Chamrongraithan, at only 27 years of
age and 12% ownership, has no corporate post.
It is also noticeable that at least 17 directors have been with the company fifteen
years or more and the Financial Director has been employed for 24 years.
The Assistant Managing Director of the Se-ed Book Centre is the wife of the
Managing Director and, to avoid internal conflict, reports to the Deputy Managing
Director. The new divisional manager of the ebook division, reporting to the
Assistant Director in Purchasing and eCommerce is the Managing Directors son.
A distinct number of directors graduated Engineering from Chulalonkorn University
including the Director of Recruitment and Remuneration, the Company Secretary,
the Director of Human Resources, the Director of Logistics and the Managing
Director. It is important to consider whether directors are selected on job suitability
or on an overemphasis on compatibility and common interest.
Of the fourteen divisions, three are managed by the Deputy Managing Director, two
by the Assistant Managing Director of Sales and Distribution and nine by the
husband (MD) and wife (AMD) team.
It was reported that in 2014 the company lost THB 9 million on the exchange rate.
With annual import product sales totaling THB 300 million, it was surprising to

employees that this function was not managed; suggesting that lack of internal
specialist knowledge at director level impacted business - as no position existed to
manage the exchange rate and the timing of vendor payments to minimize negative
business impact.
The Director or Human Resources is also the Director of the Se-ed Learning Centre
Division, suggesting elements of empire building considering the separate skill set
necessary for effective management of the two divisions.
Lack of alignment among divisions leading to goal incongruence was noticeable in
2011 when the Se-ed Learning Centre Division chose to purchase a software license
from an obscure company in Taiwan called Live ABC, instead of using classroom
materials from Oxford University Press, a publisher exclusive to Se-ed. The
relationship soured, with OUP revising down the list of exclusive products to Se-ed in
2012.
Principle Agent Observations
Moral hazard issues have occurred in the past due to low level corruption between
sales representatives and decision makers and purchasing staff at universities.
However, one major concern is the fact that employees reportedly rarely approach
directors with issues and recommendations.
Organizational Architecture
Concerning the concept of the three legged stool, decision rights do seem to be
partitioned with the Managing Director actively involved in the recruitment of all
managers and all pricing decided at director level. Only the Director, Managing
Director and Deputy Director can sign on behalf of the company. However, there is
no internal system to reward performance based on individual or divisional goals.
The bonus for all employees is related to total company profitability and very loose
measurements, often based on manager recommendations, are tied to the following
years salary increase.
Through the CRM portfolio, employees are given healthcare, flexi-time, help with
personal debt reduction and incentives to save money for retirement. Despite these
incentives, staff turnover in the retail business is high. Staff are given a welcome
party upon joining but little in terms of formal training.
Financial Details and Performance
Ahmed Please give overview

In 2014, the Company continues to be affected by economic slowdown. Due to a

decrease of net purchasing power, increasing household debt, and technological
changes, especially in digital device, consumers were more cautious in their
spending and changed their buying behavior. It had resulted in the decline of the
Companys sales all over the country, complying with the conditions of retail
business in general.
78.94% of the total revenues of SE-ED is generated by retail and 15.61% from the
wholesale, collectively these two accounts 95% of the total revenues. Only 5% of
the revenues are generated from magazines, publishing services and educational
fee and services which is quite a low percentage if we compare it with retail and
wholesale.

Ahmed Please provide commentary on the below ratios

Liquidity
Current and quick ratios are improved in 2014 as compared with 2013 which means
SE-ED has more cash this year to pay debts than before.
Account receivable turnover and average collection period shows that SE-ED is
managing its credit more efficiently from the previous year reducing its chance to
lose money from credit sales.
Inventory turnover decreased this year because of less sales as compared with
2013 and causes excess of inventory due to economic slowdown and decrease in
net purchasing power, average selling period increased resulting more days to
convert inventory into cash and we know cash is king the less the company have
ability to generate cash efficiently the more it got problems with liquidity.
Increase in payable turnover and decrease in average payment period indicate that
SE-ED is paying its suppliers earlier than before to get advantage of early payment
discount and also suppliers are demanding very fast payment term because of the
economic downturn and political situation.
Cash cycle indicates that it takes fewer days to convert investment into inventory
and inventory into cash by SE-ED in 2014 (53 days) as compared with 2013 (57
days).

Profitability
Gross profit margin ratio increased in 2104 however sales were decreased
overall, amounted THB 1,676.15 million, decreased by THB 51.81 million or
3.00%. However, gross margin in 2014 was 34.12%, increased by 1.57% from
last year. Due to a decrease of 10.01% in retail sales of 10.80% in foreign
books sales and an increase in book distribution, especially course books for
institutions.
Operating profit ratio increased in 2104 by 0.81% which means the company
is making enough money from its ongoing operations to pay for its variable
costs as well as its fixed costs.
Cash to earnings ratio decreased gradually from the previous two years till
present which means SE-ED is consistently decreasing in its tendency to
convert cash into inventory and inventory into cash efficiently because
decrease in sales and trend in market.
Net profit margin ratio increased by 0.29% in 2014
Amounted
THB 81.27 million increased by THB 8.98 million or 12.42% from last year.Rec
eived more trade discount in both retail market and new books from
distribution business. Fee facility from shutting down the small unprofitable

branches. Employees expenses reduced in accordance with the decreased

number of closures.

Return on equity increased by 0.69% in 2104 which means management is

utilizing its equity base efficiently and SE-ED is in a position to provide better
returns to the investors.

Ahmed Please provide commentary on the below ratios

Ahmed Please provide commentary on the below ratios

Efficiency
Return on Assets (ROA) was 4.67%, increased by 1.09% according to better
operation results, gaining higher margin from course books and other goods from
retailing and wholesale businesses.
SE-ED is efficiently using its assets to generate reasonable profits from them. profits
from the assets justify the amount invested in these assets.

Return on fixed assets decreased by 4.39% in 2014 as compared with 2013. SE-ED
opened new warehouse with the investment of THB 421.13 million in fixed assets.
Asset turnover ratio decreased because SE-ED is not utilizing its assets efficiently to
generate reasonable sales, the ratio decreased by 0.21% and one of the reason is
huge investment in construction of warehouse which may increase the efficiency of
assets to generate sales but at present it shows negative effect.

Financial Policy

Debt to Equity Ratio increased by 0.16 times, due to long term loans from financial
institutions (Construction of new warehouse)
Interest capability ratio decreased alarmingly 49.28 times in 2013 and 8.03 times in
2014 which means SE-ED is losing its capability to pay interest expenses out of their
before tax income because of huge loans from financial institutions especially for
expansion.
Debt service coverage ratio improved a little (.05 times) in 2014 as compared with
2013 but overall it is not a good situation. The company's net operating profits are
way below to pay its debt service obligations and SE-ED has less cash to pay and in
case it will use its savings which will affect the shareholders and investors.
Dividend payout ratio of SE-ED do not show a sustainable trend, increased in 2013
and decreased by 10.78% in 2014 revealed that the company has less savings and
not generating reasonable profits or cash flows to support its operations. This is
alarming situation for investors and shareholders that the company can no longer
afford to pay reasonable consistent dividends.

A comparison with Amarin Printing Publishing Public Company Limited and

interpretation. 2013 data sets only.
Liquidity
It is noticeable that Se-ed takes 37 days to sell inventory compared to Amerin which
takes 72 days. In addition there is a large comparison between the current ratio of

the two companies, with Se-ed not being able to pay current liabilities opposed to
Amerin with a current ratio or 4.06, putting Amerin in a stronger position in terms of
credit rating.
Concerning accounts receivable, Se-ed collects money in 39 days compared to
Amerin, who collect money in 90 days. Se-ed takes 137 days to pay debters
compared to Amerin which pays within 47 days. This could be due to the fact that
retail consumers, making up 80% of Se-eds revenue pay immediately.
Se-ed has a negative cash cycle of minus 61 days (opposed to what is presented in
the financial report at (57) days) and Amerin has positive cash cycle of 116 days.
This indicates high liquidity, effective inventory management and effective
management of resources for Se-ed. Even a retail giant, such as Amazon (US) has a
negative cash cycle of 14 days. This shows that Se-ed has a good reputation in the
industry with longer payment terms agreed, as Se-ed dictate terms. The contract
with Se-ed and Oxford University Press, for example, has payment terms of 180
days.
Profitability
Concerns arise when looking at the operating profit for Se-ed, with a ratio result of
only 1.76 compared to Amerin at 17.14. This could be the result of the negative
consequences of the bookshop business, Se-eds 507 shops taking longer to
implement changes that Amerins 163 retail outlets. The return on equity for Se-ed
is 8.11 compared to Amerin at 14 which tell us that, through Amerin pays a lesser
perentage of dividends, that Amerin is more profitable overall.
Efficiency
Return on assets, for Se-ed, runs at 3.58 compared to Amerin at 11.36, showing that
Se-ed is not managing its assets as effectively as Amerin. This could be the result
of downtrend in the retail business. Se-eds assets turn over 2.05 and Amerin is
0.83 per annum, due to Se-eds larger depreciation on assets and lesser efficient
utilization. This could be due to software upgrades to manage both the warehouse
and retail chains.
Financial Policy Ratio
Debt to equity for Se-ed is 1.68 compared to Amerin at 0.23 showing that Se-ed is
financed almost equally by debt and equity, wheras Amerin financed 4.3 times by
equity compared to debt. This shows that Amerin is more market driven.
Concerning dividends, Se-ed pay out 97.5% of net profits as dividends, the majority
of shares being owned by directors as a major possible reason for such as high
payout. Amerin paid out 68.56% in 2013 in comparison, also high suggesting that
this is a family owned operation.

Amerin Printing and Publishing Public Company Limited

Cost Accounting
(i) Opportunity Set
Se-Education diversifies risk through generating business through a portfolio of
products and services, including distribution, publishing, retail outlets, a school and
through the provision of educational fees. 78.6% of revenue is generated from the
retail business. However, retail trends are dependent upon consumer trends and
the wider effects of the economy, compared to the education business, which is less
impacted by the economy. With different strategies evaluated in terms of baht
spent to revenue generated and consistency with long term trends, the internal
opportunity set can be re-evaluated in terms of deciding where to invest. If we
compare the percentage revenue trends among divisions we can see that the
wholesale book business has increased, most likely through the increased supply of
educational materials to schools, though the difference between other divisions is
relatively stagnent. Se-ed must consider if they are capable of change to match
market requirements and remain competitive in the segments they operate in.
Cost Drivers
With the retail business making up 78% share of annual turnover, cost drivers
associated with this function are retail rental space and human resource/ staffing
costs. Approximate retail costs for Central Group, a business partner of Se-ed that
allocates space is THB xxx per m2. In addition, there are commission costs
associated with partnering with a retail development company.
For production, paper and printing costs are key. The company does not own any
printing machinery to take advantage of market forces as individual printers

compete for business, but does purchase paper to allocate to printers to control
variable paper costs.

Death Spiral
Economic, social and technological factors are contributing to the decrease of sales
in the retail division, as consumers look for alternative digital options to replace
paper products. Considering, the economic environment, operating margins are
being squeezed as publishers, both local and foreign, are increasing net prices to
Se-ed, but this cost cannot be passed to the end user for fear of defection. Internal
data points to the annual number of books purchased by customer from eight to two
(quote Joy). Products sold in the bookcentres are being diversified through a
strategic decision to prop up profitability. However, it is unlikely that previous
revenue generated from books can be replaced by alternative products. Short term,
cost control activities are being implemented. However, we may see an occurrence
of a death spiral as the cost of books increases. From the below overall sales data,
a bell curve could be predicted as the industry goes into decline.

Cost Control
There is not efficient management of currency. In 2014, THB 9 million was lost due
to GBP/ USD currency issues. Considering that the import book business is of THB
300million in value, lack of strict control caused loss in this area.
17 Exectutives, large for such as company.
To manage the ever fluctuating paper market, paper rolls for printing are purchased
directly by the company, and allocated to third party printers to decrease risk.

Se-ed has recently closed a number of shops rented from Central Group, due to the
rising rental costs and commission payments with plans to open shops near schools
and universities, partnering with Tesco Lotus and Big C as an alternative.
To reduce rental costs, construction of a new warehouse started in 2012 and is now
operational
To control staffing costs, over 50% of staff located in the retail outlets are part time,
enabling efficient use of staff at non-peak times.
The e-commerce model is being expanded to enable Se-ed to manage the consumer
switch from paper products to digital products. Currently managed by the MDs son
this department has three employees.
Product Costs and Period Costs.
The below flowchart shows the period and product costs involved in producing a
book or magazine

Product
Costs

Period Costs
Editorial and
marketing staff
meet to assess
the suitability of
the manuscript
from an external
writer or
internally
selected author or
translater.

Production of
artwork, design,
marketing
message and
pricing. The
product is
proofread and
files are passed to
the printer.

Period
Costs

Paper is
purchased
directly and
passed to a third
party printer for
production.
Books are stored,
shipped,
distributed,
marketed and
sold.

Strategy Analysis
Political
Instability causing consumer consumption stagnation and decreasing economic
growth form 2.9 (2013) to 0.7 (2014). Coupled with minimum wage increases in
2012 these factors have driven down operating margins of domestic companies who
employ large unskilled workforces.

Environmental
Considering, the economic environment, operating margins are being squeezed as
publishers, both local and foreign, are increasing net prices to Se-ed, but this cost
cannot be passed to the end user for fear of defection. Paper going green

Social

Technology
With trends pointing towards consumers spending more time and money on social
media, the number of people reading books has dropped. However, the intricate
problems with Thai script make the production of ebooks more complex, delaying
the number of ebooks on the market in Thai language, enabling strong sales of
existing paper products.
Access to digital media itself has diversified among the range of hardware including
laptops, desk tops, mobile phones and tablets, enabling more reading habit choice
for the consumer and negatively affecting the sales of print magazines and
newspapers. eMagazines are seeing explosive growth

Recommendations
External advisors be employed, especially for financial management.
Expand the e-commerce department and spend money on both researching market
trends, research and development and building the professional capabilities of staff.
Though extensive investment has been spent on NaVision, specialist software to
monitor and track shipments of stock, it is advised that the company invests further
in CRM systems to build customer loyalty and increase sales opportunities.
Further diversify the product portfolio
Employees to be given focused goals and bonused on individual performance
Focus on education services
Everyone wants to grow training programs for bookcentre staff
Conclusions from a wider perspective

Resources
Economic Data:
Currency Conversion
Minimum Wage
wages

http://www.focus-economics.com/countries/thailand
http://www.oanda.com/currency/converter/
http://www.tradingeconomics.com/thailand/minimum-

Se-Education Annual Report http://corporate.se-ed.com/

Aksorn IPO Information
http://www.nationmultimedia.com/business/AksornEducation-plans-IPO-on-SET-soon-30256835.html
Thailand Anti-Corruption http://www.thai-iod.com/en/projects-3-detail.asp?id=1