Financial Projections and Market Development

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CHAPTER 06

6.0 FINANCIAL PROJECTIONS

The chapter is outline the financial summery, forecasted financial objectives of the bank by re-launching market development & market penetration activities for MB. Consolidated budget allocations for 04 different SBUs have already been discussed in Chapter 05 & this chapter makes financial projections for next 03 years.

6.1 Startup Capital

Forecasted startup capital of new SBU plan to be financed through bank reserves & there will not be any financial cost Involvement on same. Importance of the following schedule is very less Investment on fixed asset requirements.

Table No 10 – Startup Capital

Software Development & IT Infrastructure

250,000

Office equipment - Marketing Division

150,000

New office furniture to identified branches

100,000

Working Capital Requirement to conduct the campaign

1,500,000

Total Start up Capital requirement

2,000,000

Bank Funding through reserves

2,000,000

(Source : Author’s work)

6.2. The Master Budget funding issues

Author has been identified 04 main SBUs in this business development proposal & budget allocations were made according to the business forecast prepared till 2018 (Refer page Nos. 52 to 54 for the master budget prepared for all SBUs). There had been 18 Million Investment already made on MB Infrastructure & Implementation process this master budget cost allocations will be an additional cost factor for the bank If it does not compensate In return. Further, MB is cost saving tool where bank will be benefited Indirect ways by curtailing overall cost in the bank therefore bank’s finance department has been agreed to reimburse LKR 10/- per mobile banking transaction subject to maximum 12 MB transaction per annum & per registration.

Example –

2016 Expected new MB registrations= 30,000

Reimbursement Amount= (30,000*12)10/-

2016 cost savings Income= 3,600,000/-

MB Income/ profits will be utilized to manage next 03 years market development activities.

6.3 Financial KPIs of NTB

Being in a highly regulated Industry banks are supposed to provide Insight of all financial transactions are taking place within the bank. The objective of further making Investment on MB simply to curtail cost attribution by diverting core banking transactions to a digital platform. Author has been identified key financial Indicators to evaluate financial position.

  • Return On Assets
  • Assets Turn Over
  • return on Capital employed
  • Expense turn over ratio

6.4 Financial Statements

6.4.1 Profit & Loss Account

Amounts in Rs. 000

Profit & Loss Account

2016

2017

2018

Notes

Income from MB fees & commission

4,500

12,555

13,950

Cost saving from diverting counter transactions to MB

3,600

10,044

11,160

Total Income(Subject to 7% Inflation adjustments)

8,100

22,599

25,110

1

Less (Budget allocations among SBUs)

Marketing

2,450

2,621

2,804

HR

850

909

972

IT

1,150

1,230

1,316

Branches

850

909

972

(-)Total operational Expenses (Subject to 7% Inflation adjustments)

5,300

5,669

6,064

2

Profit Before Taxation

2,800

16,930

19,046

Taxation(VAT & Income Tax)

1,120

6,772

7,618

Profit After Taxation

1,680

10,158

11,428

(Source : Author’s work)

Assumptions

  1. Income has been determined based on the following schedule (According to forecasted No. of new registrations in page No. 40 number of new MB activations in each year) Assumption made on minimum 12 transactions per annum from new MB registered customer to figure out the cost saving & each MB transaction cost savings is calculated at LKR 10/-.Further, the Registration commission of LKR 150/- & 10/- per transaction cost savings will remain as same for next 03 years.

(Table No 11 – Annual Business Income calculation)

Income

2016

2017

2018

No of new registration

30,000

90,000

100,000

30,000*150

90,000*150

100,000*150

Registration fee

4,500,000

13,500,000

15,000,000

(30,000*12)10

(90,000*12)10

(100,000*12)10

Cost saving

3,600,000

10,800,000

12,000,000

Total Income

8,100,000

24,300,000

27,000,000

  1. Annual average Inflation rate will remain as 7% for next 03 years & Inflation effect has been calculated in both Income statement & the balance sheet prepared for next 03 years
  2. SBUs cost allocation wouldn't be changed for next 3 years except for the Inflation effect
  3. Bank will not go for borrowings to run this campaign
  4. Annual combined tax percentage remains as 40% for all 3 years.

Notes of profit & Loss Account

  1. Income has been determined based on forecasted MB activations stated in page No 40.

Direct activation fee, cost savings of LKR 10/- per transaction & Inflation effect on forecasted Income has been taken in to account.

  1. Master budget cost allocations have been mentioned with the Inflation effect.

6.4.2 Balance Sheet

Assets

Notes

2016

2017

2018

Cash & cash equivalents

1,680

1,158

1,428

Other financial Assets

-

9,000

10,000

Total Assets

1,680

10,158

11,428

Liabilities

Retained earnings

1,680

10,158

11,428

Total Liability

1,680

10,158

11,428

(Source : Author’s work)

6.4.3 Cash Flow Statement

Forecasted Cash Flow

2016

2017

2018

Total cash generation from MB commission

4,500,000

12,555,000

13,950,000

Total Expenditures

5,300,000

5,669,000

6,064,000

Net Cash Flow

(800,000)

6,886,000

7,886,000

(Source : Author’s work)

Only considered Income factor for the cash flow statement is MB registration commission, therefore first year there will be a cash flow issue which needs to be financed through Internal sources(Bank reserves). However 02 year onward there is a positive outlook In term of the cash flow according to the financial Interpretations.

6.5 Breakeven Calculation

(Table No 12- Breakeven Calculation)

Amounts in LKR

Registration fee of MB

150

Average variable cost Involvement on each registration

88

Net contribution per unit

62

Per unit Margin

41%

(62/150)*100

Total Fixed cost (As per startup capital)

2,000,000

Breakeven point

32,258

(2,000,000/62)

(Source : Author’s work)

According to the above table if a branch gets minimum 01 new MB registrations per day total No. of registration in the bank (1* 90 Branches =90) then It will take 358 days (Approx .01 year) to reach the breakeven stage. (32,258 MB new registration/180)

6.6. Financial Ratio Analysis

According to the above financial projections key financial trends can be determined in the business.

  • 02nd year onwards there is steady 14.5% growth can be expected In terms of the cash flow.
  • After the launch of aggressive marketing campaign 2016 to 2017 (1st to 2nd year) drastic growth of 180% to be expected In term of the total revenue simultaneously the profit attribution will have significant Improvement with the sharp Increase of MB registrations
  • Since the variable cost will not see a major change 02nd year onward sustainable growth momentum will continue both in revenue & profit margins.

6.7 IMPLEMWNTATION & CHANGE MANAGEMENT STRATERGY

In conclusion, entire analysis of the research data it is a proven fact that the low usage of MB is due to following external & internal considerations.

External factors

  • Traditional banking practices in the Industry have created some resistance on technological banking Innovations
  • Lack of knowledge & confidence over digital banking technology
  • Customer resistance due to security concerns & trustworthiness

Internal Factors

  • Less priority given by the bank to promote digital solutions especially MB
  • Knowledge gap within the bank on MB solution
  • Less focus & poor marketing activities to develop the market

The above scenarios have been critically assessed in this proposal & recommendations made to Increase the usage of identified product. This proposal will further elaborate the Implementation & change management process to develop the market share of NTB MB.

All 90 branches will be divided into 6 zones according to the geographical location (District level) & business environment.

Zone 01 to 03- Colombo Branches

Zone 04- Down south Branches

Zone 05- Central province branches

Zone 06- North & East branches

The zone managers, Ideally the required candidates from senior management team will be heading each zone & act as the In charge of the entire business operation of their respective zones. Zonal managers will directly monitor the growth of MB usage held responsible for the business growth. The proposed market development campaign to be commenced in Jan 2016 across the bank & all SBUs will make a combine effort to Increase the MB market capitalization

to the expected level. KPIs to be prepared for all SBUs & especially branch teams will be identified based on their skills to develop the business; required cross selling target should be given to every staff member irrespective of their job function within the branch.

Sales Force Effectiveness Campaign on MB (SFE- MB)

Standardizing the sales approach across the bank to bring the sales & business promotional culture among all branches. The performance dashboard is being set up to monitor daily, weekly & monthly business progress of a particular branch, the dash board has a permanent place for each & every staff member to record their Individual sales contribution towards the campaign.

(Table No 13 : SFE Dashboard)

Staff Member

No of lead generated for MB

No of MB Registrations

No of MB Activations

Cross selling opportunities on other products

(Source- Author’s work)

The above format will be drawn on a white board which can be daily updated in fornt of the branch manager during regular morning hurdle. Branch manager needs effectively check the progress of new registrations & activations while coaching the branch staff to develop their cross selling abilities.

In SFE process branch operational staff (Teller, credit officers, pawning staff) will also be participating Indirectly for the campaign which they considered as “Lead Generators” They are suppose to collect minimum of 03 MB leads per day & handover them to branch sales unit “Lead convertors” (customer relationship staff) In case if they are unable to get customer’s consent then & there to do the registration or activation during first Interaction with the customer.

Rewards points distribution among LG & LC

(Table No 14: Reward points structure)

Lead Generation

Business Conversions

Total reward points

Lead generator

25 Points

25 Points

50 Points

Lead convertor

N/A

25 Points

25 Points

(1 RP= LKR 1/)

(Source – Author’s work)

Apart from the periodical marketing promotions which has been already discussed in this report standard staff rewards scheme would bring the entire team support within the branch on new business acquisitions.

In order to develop the sales culture in our branch network especially among operational staff proper internal communication needs to be developed within the organization. While motivating staff through an Incentive scheme the management staff should clearly explain the long term advantage of promoting MB to the staff as well as ultimate benefits for the employees from this Initiatives.

  • Reduce the unnecessary work load to create good work life balance
  • Cost reductions would bring more profitability to the organization which will be beneficial on employees annual benefit review.
  • Enhanced sales skills will crate better career progression to employees
  • Enhanced goodwill & market perception of the bank will create mutual benefits to both employees as well as the organization. (i.e. Better recognition, demand comes from competitor banks)

6.7.1 Timescale of the Implementation

(Chart No 03 chart on Implementation)

Business Development activities

1

2

3

4

5

6

7

8

9

10

11

12

Resource deployment to all SBUs

Setting up IT & technical support

Educating branch & sales staff about the campaign

Commence Mass Media & public awareness campaign

Introducing SFE system & the performance dash board

Official launch of the SFE system & MB promotional campaign

Drive the campaign

First half performance review

Review staff & customer feedback on MB

Monitor & review

Year end financial & progress review

Plan ahead on 2nd phase

7.0 Referencing

8.0 Appendices

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