Assignment3

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Queensland University of Technology *

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107

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Business

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May 23, 2024

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BSB107 ASSIGNMENT 3 – ASSESSING BUSINESS SUSTAINABILITY

Environmental Sustainability KMD Brands As the technology that many companies utilise becomes more and more advanced the issues that have arisen due to older machinery and practices must be addressed. Mainly the issues to do with the environment and making their practices more environmentally sustainable. For example, KMD brands have seen the risk that comes with this and made a commitment to ‘minimise our environmental footprint’. They also noted that they could see a ‘change in sales due to loss of customer preference’ if they did not become environmentally sustainable. To do this they have made sure that 91% of their tier 1 suppliers are ‘independently verified by Elevate as accountable to Code of Conduct under Sustainability Linked Loan as of May 2022’. In addition, they have 72 tier 1 and 2 suppliers reporting on environmental performance. Kathmandu also eliminated packaging waste from online deliveries through shifting from 100% virgin plastic to 100% recycled plastic. This is all apart of their ‘circular business model’ which attempts to reduce KMD brands environmental footprint while also meeting their customers’ expectations. Although these changes and policies put in place do have an effect, merely reporting on environmental performances and independently verifying them has an extremely small impact. These statements could be seen as ‘greenwashing’ as although they sound environmentally friendly when broken down and without any evidence of any impact, they are hollow facts. Premier Investments Premier investments have also identified being environmentally friendly as a major goal to not only keep up with the current business trends but to also appeal to customers. They have recognized that Product and Ethical Sourcing as a way to achieve this goal. Firstly, they have extended their partnership with Better Cotton, which is a non-profit organisation that promotes better standards in cotton farming and practices, across all their brands. In addition, one of their main brands, Peter Alexander, has committed to the Global Organic Textile Standard which means their clothing must use a minimum of 95% organic cotton while the entire process must adhere to strict guidelines. Finally, across all their brands premier continue to ‘target 1

and increase our uptake of more sustainable sourcing of raw materials’. These are but a few of the changes Premier is implementing in their goal to become environmentally sustainable. Although these changes are welcome and needed, much like KMD brands they seem to have little to medium effect on the overall sustainability of their business model. Although costly a large investment and pivot into more sustainable practices must be made from both companies through the analysis and improvement of both the production and supply of their products. 2

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Impacts on the Business KMD BRANDS Long-Term Discount Rate Adjustment Through analysis of KMD brands business model and the effects this may have on the company’s long-term discount rate. Due to a medium sized investment into the sustainability of their business there is just a medium probability of revenue decline which means that the long-term discount rate will go up by 0.5% to a total of 8.5%. Although the medium probability suggests there should be no change to the discount rate the increased scrutiny by both customers and regulators on business and their practices surrounding sustainability a medium sized investment may not be enough. Impact to the Intrinsic Value Due to this rise the intrinsic value has decreased from $3.80 to $3.53. Although this change may be seen as small this could have massive implications on future investments compared to their current price. Comparison Between Current and Predicted Market Price Continuing on, due to KMD brands stock price being $0.81 while the intrinsic value being $3.53 KMD brand could be considered undervalued. Premier Investments Long-Term Discount Rate Adjustment Through the analysis of Premier Investments and their investment relating to being environmentally sustainable there will be a low probability of revenue declines. Although their investment was not extremely substantial, they have made a concerted effort to improve their sustainability. Due to this, the long-term discount rate will see a 1% decrease to a value of 7%. Impact to the Intrinsic Value Due to this change the Intrinsic Value has gone from a value of $55.30 to $66.45 which is a much larger increase than seen in KMD brands. 3

Comparison Between Current and Predicted Market Price Premier Investments currently has a stock price of $23.52 compared to an intrinsic value of $66.45. Best Investment Opportunity Through the analysis of both companies and the effect in which the long-term discount rate has on their intrinsic value a safer and more reliable investment opportunity has been chosen. Although Premier Investments looks like a better investment with a much larger stock price and intrinsic value the proportion between the two is much smaller than KMD Brands. Due to this KMD brands possess a much larger margin of safety to investors. This is because you would currently buy KMD brands at a greater discount to its intrinsic value. However, due to KMD brands stock price being so low there may be a higher volatility due to the lower price. However, this risk is far outweighed by the margin of safety present. 4

Assignment3

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