Page 9 - CIMA SCS Workbook February 2019 - Day 2 Suggested Solutions

CIMA FEBRUARY 2019 – STRATEGIC CASE STUDY

that they have developed during their time at Vita. However, to take specific documents and
designs should be seen as unethical and potentially illegal.

Review of staff share purchase scheme

The aim of any such equity scheme in a company is to reward performance as well as produce
long-term loyalty. It would appear that any equity stakes held by these 4 members of staff have
not been considered sufficient to prevent them from resigning. This might therefore mean that
greater incentives (via larger stakes) have to be offered to ensure loyalty, although of course this
would dilute the holdings of the existing shareholders.

Advice should be sought on how an appropriate equity scheme that meets all employee
expectations, and which results in greater long term commitment to Vita, might be put in place.

CHAPTER NINE

EXERCISE 1

Email

To: Paul Pau, CFO
From: Senior Manager
Subject: Retail stores

Risks

Costs
First and foremost, there is a risk that we spend a lot of money on this and it does not work out.
Setting up retail premises could require a significant amount of capital expenditure in terms of the
fixtures and fittings, especially given the description of the type of retail outlet that is successful in
the article. Having said that, we are not in financial difficulty and we’re currently generating
interest income, so if it worked it could be a great opportunity to grow the business.

Along similar lines, a move like this would significantly increase fixed costs as the rent and rates
for retail outlets are likely to be high. This is especially so given the importance of getting the right
location as the article mentions. Also, to have an atrium style as the article suggests would
indicate quite a large footprint, likely increasing the rates further and therefore our operational
gearing.

Time to fruition
You mention our share price declining as a reason for this move, moving into retailing is unlikely
to lead to a quick return and therefore unlikely to increase the share price. The time it would take
to find the appropriate premises and then fit out the premises could be significant. In terms of the
share price, as the article alludes to, retailing is a very challenging environment at the moment

68 KAPLAN PUBLISHING