Page 10 - CIMA SCS Workbook February 2019 - Day 1 Tasks

CIMA FEBRUARY 2019 – STRATEGIC CASE STUDY

these manufacturers; it is very much a collaborative approach to doing business, with each
company reliant on and assisting the other wherever possible. However, both HJM and Force and
operating at nearly full capacity and, if Vita is to continue to grow, it may need to broaden its
supplier base. Vita has enjoyed growth every year since its inception, although the rate of growth
has slowed since 2016.
Vita has 5 products in its portfolio, each aimed at a particular market segment. Its latest product,
the Chorus, is aimed at the children’s market, and was launched mid-2018.
In addition to monitoring data for activity purposes, Vita has also invested in developing
technologies aimed at other aspects of health. For example, it has developed ‘VitaPulse’ which it
has incorporated into its Primus and Pax models, and which measures heart rate. It has also
devised its own sleep tracking technology, aimed at recording the amount and quality of sleep the
wearer enjoys.
Such research and development is clearly expensive, and was the main reason for the company
seeking a listing in 2017.

Vita sells through 3 primary sales channels:
1. Through retailers’ stores, located in over 40 countries. Training is given to sales staff by
Vita so that they understand the unique features of each product.
2. Via global e-retailer sites (such as Amazon). This is in addition to the e-commerce sites
of the retailers above.
3. Direct sales through its own online store, Vita.com.

The market for wearable technology aimed at the fitness and health market is extremely
competitive. New entrants are attracted by high margins and good growth prospects. There is also
a constant need to innovate to stay at the forefront of the industry.
Details are given of 4 key competitors – Funfitt, Clown, Gopher-IT, and Smart Heart. A short
description of each is given on pages 12 & 13, but there are further references elsewhere in the
case which should be noted.
A graph on page 13 shows that Vita is continuing to grow its market share of the wearables
market if smartwatches are not included, but share of the overall market (including
smartwatches) is declining. This underlines the point already made about the growth of the
smartwatch.

Vita has not paid a dividend and has no plans to do so, preferring instead to fund R&D activity. It
claims to have strong relationships with shareholders, who presumably are not demanding
dividends and instead are investing for capital growth.
The company also boasts of good relations with staff, customers and suppliers.

An extract is provided from the company’s risk register. Risks are identified and then categorised
according to likelihood and impact to produce an overall risk weighting. The top 3 risks that have
been identified are 1) Slowing sales growth rate due to competition (especially from smartphone
options); 2) Low inventory/stockouts, due to manufacturers working at full capacity; and 3) data
security.

Financial statements are provided for 2018 and 2017, allowing for full analysis of the company’s
performance and position. However, there are no accounts for a competitor (often seen in a case)
in order to make a relative assessment of Vita.

The income statement for Vita shows that revenue grew by nearly 12% in 2018, and its gross
margin increased from 32.7% the year before to 38.2%. However, its operating margin fell from

6 KAPLAN PUBLISHING