Strategic Professional

SBL Mock 1
Strategic Business Leader

SBL – Mock Exam 1

Pre-seen Information

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Contents
Introduction ....................................................................................................................... 3
Industry information ............................................................................................................ 3
Dairy industry ................................................................................................................. 3
Baby food industry ........................................................................................................... 3
Non-alcoholic drinks ......................................................................................................... 4
Xaxa ................................................................................................................................. 7
Company roots – dairy products ........................................................................................ 7
Stock market listing ......................................................................................................... 7
Global expansion ............................................................................................................. 7
Expansion into baby foods ................................................................................................ 7
Information by Division .................................................................................................... 7
Dairy ............................................................................................................................. 7
Baby Foods ..................................................................................................................... 7
Fresh Drinks ................................................................................................................... 8
Extracts from Xaxa’s annual accounts ................................................................................. 9
Governance ...................................................................................................................10
Notes on powdered baby milk ..............................................................................................11

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INTRODUCTION
Xaxa Co (Xaxa) is a major multinational food producer, based in Ayeland, a developed industrial
country in Europe.
Xaxa produces three different types of products:

• Dairy products such as butter, yoghurt and cheese

• Baby foods – powdered baby milk and canned baby food

• Fresh fruit and dairy drinks

The company is over 60 years old and developed rapidly from a local dairy and cheese farming
operation to a global company by acquiring other companies.
The company is listed on the stock exchange of Ayeland and is one of the largest companies on that
stock exchange by market value.
The company has recently received some bad publicity relating to possible health risks associated
with the consumption of powdered baby milk in developing countries. Many institutional
shareholders are concerned by the potential impact of the issue and have been putting pressure on
the company to resolve it.
It is currently March 20X8.

INDUSTRY INFORMATION
Overview
Xaxa is a major food producer and while their product range is rooted in the dairy industry – with all
divisions having a major product range that depends on dairy.
The company also has products in the baby food and non-alcoholic drinks categories.
Dairy industry
Most dairy products in the global market are made with cow’s milk. The leading producer of cow’s
milk in the world is Europe, with the United States of America second and India third.
East Asian countries have not traditionally consumed dairy products in any significant volumes,
however, this has changed over the past decade with more dairy products being consumed in the
region.
The international trade in dairy products is a rapidly growing one, with global exports increasing by
50% over the past 5 years.
The European market accounts for around 40% of dairy exports, with many European countries
being well known for their dairy products such as cheese, yoghurt and butter.
Dairy producers are mainly controlled by larger multinational companies such as Xaxa, with small
family-owned dairy farms having mostly been acquired by larger food producers.
Baby food industry
The global baby food industry is a multibillion-dollar industry. Powdered baby milk (also known as
formula) alone is a $100 billion industry.
Powdered baby milk is a specially developed product normally given to infants under 1 year old.
The powder is rehydrated using water and given to the baby instead of, or as a supplement to,
breastfeeding.
Government organisations in most countries as well as international health bodies, have rules and
strict guidelines about the quality of powdered baby milk and also how it can be marketed to
customers.
Proper nutrition is essential for babies’ health and wellbeing, so trust in the products is vital.

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Non-alcoholic drinks
Non-alcoholic drinks are a multibillion-dollar industry worldwide, with a recent trend in the market
showing strong growth in younger consumer groups.
The fruit juice market has a value of USD150 billion globally and is increasing, while sales of soft
drinks containing high levels of sugar and artificial colourings and flavourings, are decreasing.
Global trends towards healthier lifestyles are altering consumption patterns and fruit-based drinks
are a growing market for new and innovative blends and flavours. Dairy drinks are also on the rise,
as the nutritional content of these is considered to support a healthy lifestyle.
This is an industry in which innovative new flavours and products are being launched. This includes
milkshakes, milk-based coffee drinks, drinkable yogurts and other fermented dairy drinks such as
kefir.

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INDUSTRY CHALLENGES AND DEVELOPMENTS
Political
Major food producers work globally, and there is substantial political risk associated with changing
political conditions that may impact their activities in the countries in which they operate.
A global trend towards populism means that there is a rising risk that new governments may
introduce policies that favour local companies at the expense of multinationals, or that new
regulations might be introduced, such as the prohibition of some types of non-traditional products or
ingredients.
Financial
Currency risk flows from possible changes to the value of the currencies of the countries in which
food producers operate. This risk can be reduced by setting up local production facilities so that
revenues and costs associated with a country can be incurred in the same currency. Some risk
remains, as changes in exchange rates will impact funds remitted back to the home country and to
figures in the financial statements.
Supply Chain
Supply chain challenges for the food industry remain a challenge as the food supply chain has
become increasingly complex over the past decade. These challenges range from labour shortages
on farms and in transport and warehousing facilities, to poor inventory control leading to spoilage,
and a lack of container ships to transport raw materials to factories and finished products to
customers.
Sustainability in food production
Sustainability is a key issue in food production. In many developing economies farming is a
significant part of the economy and can account for 25 – 70% of employment in some regions.
However, farming practices which extract large amounts of water, use chemicals that damage the
soil health or local wildlife, or which result in food being unavailable for domestic needs, can damage
the long term sustainability of agriculture in those areas.

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Sustainable practices include measure that industry bodies recommend include:

Xaxa History

Protect smallholder incomes

Use water efficiently

Reduce carbon emissions

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XAXA
Company roots – dairy products
Xaxa’s has been established over six decades. The company, originally owned by the Richardson
family, started as a local dairy and cheese producer in the county of Ayeland. The company would
collect milk from the local farms, pasteurise and bottle it. The dairy also produced the famous Xaxa
Cheese.
For the first decade, these products were sold locally. During Xaxa’s second decade, milk sales
expanded across Ayeland and cheese exports commenced.
Over the third decade, the business grew dramatically, buying up dairies in other regions of
Ayeland.
Stock market listing
During Xaxa’s third decade the company was listed on the Ayeland Stock Exchange, taking
advantage of the culture of popular capitalism that was prevalent at the time.
The flotation valued the company at $8 million. Xaxa is one of the largest companies on the Ayeland
Stock Exchange by value.
The Richardson family continues to own a significant number of shares.
Global expansion
After flotation, the company began to expand into other countries by acquiring dairies across
Europe. This reflected opportunities resulting from political changes in Central and Eastern Europe
at that time. The company also began expanding into Asia and Africa on a smaller scale.
Expansion into baby foods
Approximately 20 years ago the company diversified into baby food sales. This enabled the company
to leverage its brand name into products such as powdered baby milk. The company developed
these baby food products itself and set up factories around the world to service its existing markets.
Also around 20 years ago, Xaxa acquired a well know international drinks company, Fresh Drinks.
The operations of Fresh Drinks were not integrated with those of the existing dairy and baby food
activities, and Fresh Drinks continues to operate as an autonomous division of Xaxa. This acquisition
was financed by an issue of new shares. The Richardson family lost their controlling share in the
company at this stage, although they still own a significant stake in it.
Information by Division
The company now operates through three divisions: Dairy, Baby Foods and Fresh Drinks.
Information about these three divisions is as follows:
Dairy
This division is involved in the traditional dairy activities of collecting milk from local farmers and
processing it to make Xaxa’s products. These include bottled milk, yoghurts and cheeses.
All dairy products are sold under the Xaxa brand, mainly to large supermarket groups. Xaxa has
global agreements with some of the larger global supermarket chains, as well as local agreements in
many countries with smaller local supermarket groups.
Xaxa is the third largest producer of dairy products by market share in the markets in which it
operates.
Baby Foods
This division manufactures powdered milk for very young babies and canned food for older babies.
The products are manufactured in various factories around the world and sold to supermarkets as
well as to hospitals and clinics.
Xaxa is the market leader of baby foods in most of the markets in which it operates.

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Fresh Drinks
This division represents the Fresh Drinks company acquired by Xaxa. Fresh Drinks are drinks that
require refrigeration. The company originally only produced fruit-based drinks. The drinks are made
and bottled around the world in factories close to the fruit farms which supply the business.
Most of the brands remain unchanged since the company was taken over, although the division has
launched a milk-based drink under the Xaxa name. Sales of this division are to supermarkets, bars
and restaurants.
The division’s exact market share is not known, but it is considered to be a small player in the fresh
drinks market.

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Extracts from Xaxa’s annual accounts

Where we work

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Governance
Members of the board of directors as at December 31 20X7
Geoffrey Richardson
Chair of the board
At 60 years old Geoffrey brings a wealth of experience to Xaxa, having been brought up on Xaxa
food! Geoffrey is the latest member of the Richardson family, the founders of Xaxa, to serve as
Chair, and has been in the role for 25 years.

John Maxwell
Chief executive
John has been Chief Executive of Xaxa for 15 years, having previously owned a successful dairy
which was acquired by Xaxa – so John’s expertise in the industry started when he was a child
running around his family farm!

Eszter Szabo
Finance director
Eszter came to Xaxa 2 years ago having previously has senior finance expertise working with other
multinationals in Europe. She has extensive knowledge of finance and operational efficiency and has
lived and worked in several European capitals.

Dieter Winter
Director of Dairy division
Dieter has led the Dairy Division for 7 years, but has been with Xaxa for over 15 years, having
previously worked in factory and production management.

Jean Marie Avello

Director of Baby Foods
Jean has led the Baby Foods division for 18 years, and previously worked in sales and marketing for
Xaxa and other companies. She was Regional Head of Marketing for 2 years before taking on her
directorship role.

Donald Mumford
Director of Fresh Drinks
Donald has worked in the drinks industry for 45 years, in leading companies in Ayeland and
internationally. He has been in his current role for 16 years.

Non-executive Directors
Our non-executive directors are Winnie Zaha, who has been with us for 2 years and Harry Davidson
who joined 3 years ago.

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NOTES ON POWDERED BABY MILK
Overview
Powdered baby milk is normally made from cow’s milk which has been processed to make it suitable
for babies. Ordinary cow’s milk, either fresh or powdered and reconstituted, is not suitable for
babies under 1 year old.
Baby milk is recommended for use only when breastfeeding is not possible or as a supplement to
breastfeeding.
Preparation of powdered baby milk

• All equipment such as bottles, caps and other accessories should be sterilised before first use
by boiling in clean water for five minute or using a microwave steam steriliser, or an electric
steam steriliser.

• After first use the bottle can normally be cleaned using soap and hot water, but sterilisation
may be recommended in certain circumstances such as if the baby has a weakened immune
system.

• Add clean tap water or bottled water to the powder in the amounts listed on the packaging.
Measure the amount of water and powdered milk carefully since using too little powder could
mean the baby doesn’t get enough nutrients and too much powder could cause digestive
problems and dehydration. Add to the bottle and shake well to mix.

• Cool the milk to 37C (lukewarm on the skin) before feeding the baby.

• The milk should be used within one hour of beginning feeding the baby.

• If the milk is prepared in advance, it should be stored in a fridge and used within 24 hours.
Restrictions on advertising powdered baby milk
International Code of Marketing of Breast-milk Substitutes was set up to regulate the industry to
prevent any marketing activities that discourage mothers from breastfeeding. The code allows
factual information about powdered baby milk to be provided, but not the promotion of powdered
baby milk as an alternative to breastfeeding. Techniques such as providing free samples are also
prohibited as the mother can stop producing breast milk if breastfeeding is not undertaken for some
time.
Ayeland has implemented the code into legislation with regard to marketing powdered baby milk in
Ayeland, and several of the countries in which Xaxa sells powdered baby milk have also
implemented the code.

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