Page 13 - CIMA OCS Workbook May 2019 - Day 1 Tasks

SUGGESTED SOLUTIONS

Question Response

Discuss whether the Revenue growth
2019 budget is realistic. The key driver of the budget is the planned increase in revenue of 19.8%
(p18), due mainly to volume growth of 21.2% (p21 = 80/66)

Arguments why the growth is reasonable
• VitaMine has beat this in each of the last three years (p21)
highlighting the strength of the brand and product quality
• Major ongoing investment in R&D (p11)
Arguments why it isn’t
• Industry only expected to grow by 5-6% each year (p13) meaning
that the budget can only be achieved if VitaMine gains market
share, which is difficult in such a fragmented industry with low
customer loyalty.

Other factors
GPM expected to grow from 24.4% to 25.0% (p21). While we would
normally expect growth to result in higher margins (due to the presence
of fixed costs), this was not the case in 2018. Until we understand why
costs went up so much in 2018 we cannot guarantee it won’t happen
again in 2019.

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