Page 10 - CIMA SCS Workbook August 2018 - Day 1 Tasks

CIMA AUGUST 2018 – STRATEGIC CASE STUDY

looking more to online platforms rather than newspapers. This has meant that newspaper
companies have had to adapt their business models.

FNG is no exception, and performance in recent years reflects the increasingly difficult market it
operates in. Graphs are provided for the period 2013-2018, and reveal that whilst revenue has
fallen by approximately 30% in that time, operating profit is down by 95%. Furthermore, whilst
the company paid a dividend of approximately $43m in 2013, the payout in 2018 was just $3m.
The area of growth for the industry is digital, both in terms of advertising and subscription
revenue to digital versions of newspapers. FNG has seen its digital advertising revenues grow
from approximately $12m in 2013 to nearly $41m in 2018. This is clearly the future for the
industry, but for FNG the growth in this revenue has not been sufficient to compensate for the
decline in other areas. It has been slow to utilise the full potential of digital advertising.
Cost management is critical to FNG. It recognises the need to increase its digital provision (at
present, each of its 40 newspaper titles has its own dedicated website, and the 18 most popular
titles also have apps for tablets and smartphones); but it also wants to retain a high-quality
printing operation. The latter will not only help achieve a commitment to providing printed local
news, but also help the contract print revenues to grow (some significant tender wins in 2017
have helped revenues from this source grow over the last 12 months).
Unfortunately a lot of the costs are fixed – staff and premises. Cost reduction therefore requires
difficult decisions to be made. The company has not yet stopped printing any of its titles, but
other newspaper companies have.
An extract from the company’s risk register is provided, and the changing revenues and cost
management have all been highlighted as having a high risk rating. The other high risk factor is
rd
data security; this is managed through collaborating with 3 party suppliers to protect FNG data
and systems.
Despite the fall in profits, FNG was able to generate positive cash flow in 2017. Its cash balance
grew by almost $1.7m during that year to $3.7m.
Also provided are the KPIs in place to monitor whether the company’s strategy is being delivered.
This shows mixed results, with some targets being met but others not – the critical ones of an
operating profit margin of 2% and stemming the fall in print advertising revenue.
Finally, a series of newspaper articles are provided which continue to paint a gloomy scene for the
traditional newspaper business model and which point to digital format as being the future.

6 KAPLAN PUBLISHING