Page 2 - CIMA SCS Workbook August 2018 - Day 2 Suggested Solutions

SUGGESTED SOLUTIONS

to the Board for clarity on how this is going to be reversed. An announcement that the company is
placing much more emphasis on digital copy in the future is likely to offer some degree of
reassurance. Although a dividend of $3m has been paid in 2018, this was greater than the profit
earned in that period, and can clearly not be a sustainable policy for the future.

Finally, it needs to be pointed out that the company must start to adopt some radical new
strategy if it is to preserve its long term future. Whilst FNG is still profitable and able to generate
positive cash flows at present, the signs of this changing are stark. Should the current decline in
business performance continue into the future at the same historic rate, it will not be too long
before the company starts to report losses. Adopting a new strategy, whatever it might be, must
happen soon for FNG to continue as a going concern in the mid- to long term.

Negative

There are, however, a number of negative factors also to be taken into consideration.

Firstly, it is likely to result in a number of FNG staff being made redundant. As a company with a
strong ‘family’ ethos, it will not be easy to inform people, many of whom may have worked for
the company for a long time, that they are now unemployed. Whilst there may be a very
compelling business reason for such action, this will not make it any easier for those who have to
put it into practice.

Secondly, our print staff are highly trained and skilled. It is highly likely that any decision to close
such facilities will prove a decision that cannot be reversed in the future; once such skills have
gone, they cannot be replaced. The Board must therefore be convinced that this is the right step
to take.

Furthermore, there is likely to be considerable resistance from employees when the news is
announced. Given that many belong to a trade union, the threat of industrial action in the form of
strikes cannot be ruled out. This could prove highly disruptive to FNG, as putting all titles onto a
digital platform is likely to take some time, and therefore closure of the print factories is unlikely
to happen immediately.

There could also be a negative reaction from the readers of printed copy, particularly those of the
local newspaper titles. They are likely to have little alternative paper to choose from to access
their local news and, if they are not comfortable with technology, may well feel that an important
community asset is being withdrawn altogether.

It will be interesting to see how the Finch family react to the proposal. They presumably have a
much more emotional attachment to the organisation than the other Directors and shareholders,
given the sense of family history that there is. Some may see doing away with traditional printed
newspapers as betraying the legacy of their ancestors, although this is most probably more
relevant for Alan and Mary Finch, as the other family members have no direct involvement with
the company on a day to day basis.

Additionally, it must be asked whether FNG has the skills necessary to make a switch to pure
digital a success. Whilst there has been growth in digital advertising revenues each year for the
last five years, this has not been sufficient to prevent a fall in profits. Does FNG have the right
number of people with the necessary skills to be able to earn sufficient digital advertising revenue
across all 40 titles in its portfolio? It may well be that time will be needed to staff up in such areas.

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