Page 25 - MCS August Day 1 Suggested Solutions

SUGGESTED SOLUTIONS

Long term loans outstanding increased by F$200m to F$5,000m in 2018, resulting in a small
increase in the gearing ratio from 4.6% to 4.8% in 2018. Interest cover of 7.1 times (6.8 times in
2017) suggests that Montel would need to suffer a significant reduction in profits before ability to
meet finance costs was compromised.

The existing debt level appears to be quite low and very affordable and Montel could consider
increasing its debt if additional finance is required for future investment.

Segment analysis

The overwhelming impression presented by the segmental information is one of little or no
change.

In terms of the geographical split of revenue, the only change was a fall of 0.6% in revenue
generated from ‘Other’ and a 0.6% increase in revenue generated in Europe. North America
continues to be the largest revenue generator (28%), followed by Europe (24%), Farland (22%)
and Asia (18%).

The revenue generated by product range shows a similar degree of consistency from 2017 to
2018. The Compact range is the biggest revenue generator in both 2017 and 2018, with 33.6% in
2018, a fall from 36.2% in the previous year. The next largest was the Bridge product range with
21%, a small decrease from 21.7% in 2017.

The CSC range contributed a slightly higher proportion of revenue in 2018 at 17.5%, up from
16.3% in 2017. There was a similar story for the Budget DLSR range increasing its contribution to
revenue from 13.3% in 2017 to 14.6% in 2018. The Premium DLSR range also increased its
contribution to total revenue at 10.4%, up from 9.7% in the previous year. The small Professional
DLSR product range contributed just below 3% of total revenue in both years.

In terms of gross profit generated, North America was the biggest region in both years at 28.5%, a
slight increase from 28.0% in 2017. North America is also the biggest region in terms of revenue.

There were also similar small increases in gross profit generated the next largest regions, with
Europe at 24.2% in 2018 (23.7% in 2017) and Farland at 22.3% (22.0% in 2017). The ‘Other’ region
contributed a smaller proportion of gross profit of 8.4% in 2018, down from 9.7% in the previous
year.

Conclusion
Overall, the segmental analysis shows a fairly static picture. It is likely that the Professional range
is a limited market, given the number of potential customers and the price of the products with
the range.

The Compact range may have limited opportunity for growth in revenue and profitability, given
the competition for that product range from other manufacturers, and smart phones.

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