Page 21 - CIMA SCS Workbook August 2018 - Day 1 Suggested Solutions

SUGGESTED SOLUTIONS

However, a more detailed analysis of the KPIs and targets reveals a different picture.

Profitable performance

FNG’s gross profit margin has increased year on year, and it comfortably exceeds the target of
30%. However, the operating profit margin has worsened dramatically and has failed to hit the
target in 2018.

It is difficult to understand in these circumstances what comfort the company takes from the
gross profit margin KPI. As discussed in detail in Exercise 1, the company’s profitability is a major
concern. Setting a gross profit margin target that the company can easily achieve does not change
this.

It is important to have a profit KPI, but the gross profit KPI as it is at the moment gives a
misleading picture.

In future years, FNG could continue to hit the gross profit margin target, but without a significant
change in strategy it is unlikely to achieve the operating profit margin target.

Revenues
In the industry it is an accepted fact that print advertising is in decline and that digital advertising
revenue needs to grow. Therefore it seems sensible to have KPIs looking at these two revenue
streams.

In the most recent year, the growth of 14.7% in digital advertising revenue is to be welcomed,
even though print advertising revenues have decreased by 14.7% (missing the target of 10%).

However, the percentage change figures mask an alarming trend. In absolute terms, digital
advertising revenue has grown by just over B$ 5 million (from B$ 35,400,000 to B$ 40,596,300)
while print advertising revenue has slumped by nearly B$ 25 million (from B$ 168,150,000 to B$
143,440,400). This helps to explain why overall revenue is down.

In future years, FNG could achieve the current KPIs and yet still find that absolute levels of
revenues fall steeply.

Digital audience growth

Increasingly, newspaper companies are having to appeal to a digital audience, so it seems very
sensible to have a KPI looking at this issue.

However, apart from the KPI table (p21 pre-seen) saying that we have achieved this target there is
no information given to explain how easily the target was achieved.

It is difficult to assess whether the current performance is acceptable without considering how
challenging the given KPI target is, and how easily FNG achieved it in the most recent period.

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