Page 18 - CIMA SCS Workbook February 2019 - Day 1 Suggested Solutions

CIMA FEBRUARY 2019 – STRATEGIC CASE STUDY

Cash position

At first glance, it looks like Vita has a cash flow problem – cash went down by just over N$ 139
million between 30 September 2017 and 30 September 2018. However, a closer analysis of the
cash flow statement (page 20 of the pre-seen) shows the following:

• the cash balance at 30 September 2016 was only N$ 31.312 million (i.e. lower than
the balance at 30 September 2018) so in fact it was perhaps the 2017 figure that was
unusually high rather than the 2018 figure being alarmingly low.
• during 2017 Vita listed on the stock market and received N$ 53 million, which
distorted the 30 September 2017 figure.
• operating profit in 2018 was nearly N$ 100 million less than in 2017 because of the
planned increase in R&D spending (discussed in detail in Exercise 1 above). This
accounts for a significant proportion of the N$ 139 million reduction in cash in 2018.

Overall, we can therefore understand the main reasons for the reduction in cash between 2017
and 2018.

It must be noted though that if Vita intends to continue investing so heavily in R&D in the future it
will need to raise some new finance to help with this, otherwise the net cash position is likely to
go into overdraft by the end of next year.

EXERCISE 3

In 2013, the International Integrated Reporting Council (IIRC) first published its Integrated
Reporting (<IR>) Framework, a guide for all businesses producing integrated reports.
To help us to analyse and comment on Vita’s Integrated Report, let’s consider three key quotes
from the Integrated Reporting chapter in the Kaplan CIMA F3 Text (which covers this <IR>
Framework in detail) and apply them to the Integrated Report presented in the pre-seen material:

1 “The objective of integrated reporting is to try to create a more holistic and balanced view of
the company being reported upon, bringing together material aspects such as strategy,
governance, performance and prospects in a way that reflects the commercial, social and
environmental context within which it operates.”

Rather than just presenting financial information to stakeholders, Vita uses its Integrated Report
to give a much broader picture of how it is performing. The first table (“External influences and
inputs” – towards the top of page 14 in the pre-seen) nicely considers the commercial and social
context within which Vita operates. Perhaps more could have been done to consider the
environmental context though (e.g. increasing hostility towards non-recyclable plastics).

All in all though, Vita’s Integrated Report seems to broadly meet this objective of integrated
reporting.

2 "The primary purpose of an integrated report is to explain to providers of financial capital how
an entity creates value over time. An integrated report benefits all stakeholders interested in an
entity’s ability to create value over time, including employees, customers, suppliers, business
partners, local communities, legislators, regulators, and policy-makers."

58 KAPLAN PUBLISHING