Page 12 - CIMA MCS Workbook August 2018 - Day 1 Tasks

CIMA NOVEMBER 2018 – OPERATIONAL CASE STUDY

Financial performance

Revenue grew by 24% from 2016 to 2017, resulting in an increase of 31% in operating profit. This
also increased operating margins from 11.1% to 11.7%.
The overall level of investment in non-current assets grew substantially (55%), reflecting
aggressive growth plans by the Board.
In terms of working capital and liquidity, cash fell by C$3.5 million and borrowing increased by
C$24, reflecting the fact that considerable finance was needed to fund expansion and that, even
with the additional debt, the company had a net cash outflow of C$3.5m. It is questionable how
future growth will be financed.
Inventory days and receivables increased significantly, indicating that the company may be
struggling to cope with the high growth experienced.

Future prospects
The market is expected to continue to grow, fuelled by low penetration rates compared to other
European countries, government initiatives such as ‘GetupGo’ and technological developments. It
is vital that GymFiT capitalises on these developments and does not get left behind.

Stated strategy
GymFiT wants to continue to grow through a mixture of new gyms and acquisition.

In addition it wants to improve operating efficiency through economies of scale, outsourcing and
the use of data and technology.

Finally, it wants to improve member satisfaction, linked primarily to having knowledgeable, well-
trained staff.
Budgeting
Budgets are prepared on an annual basis GymFiT adopts a participative approach to price setting,
which should give better ownership of budgets but may result in budgetary ‘slack’ and ‘padding’,
especially as gym managers have a bonus system linked to gym performance.
Budgeted sales for 2018 give an increase in revenue of 26% over 2017, which is higher growth
than achieved last year, despite opening fewer new gyms. Overall the budget looks overly
optimistic.

3 KEY TOPICS

The key topics that this case would suggest are as follows:

E1

IT/IS
Effective IS/IT is critical to GymFiT - membership enrolment, account management, payment
processing, gym access and customer communications are all dependant on the successful
operation of information systems. Any threats such as system failures, breaches of data security
or issues with confidentiality of member information must be taken very seriously. Make sure you
can discuss the importance of IT/IS and how any changes should be implemented to reduce risk.
Human Resources

GymFiT recognises that member satisfaction is highly dependent on having well-trained
knowledgeable staff. With gym managers and assistant managers factors are in place to ensure
this – a competitive salary, pension, bonus schemes and share incentive plans.

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