Pass In Training

REVIEW OF RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2020

Total revenue increased / decreased by £xxxk (YY%) to £zzzzk as SR [AND MS] growth offsetting / not fully offsetting the decline in [MS AND] AR.  This is good given / disappointing due to the highly competitive market although Beal benefits from a strong reputation for quality and multi-award winning content helps to create a loyal subscriber base.

Revenue

MS revenue increased / decreased by £xxk (yy%) to £zzzzzk  and is due to CIRCULATION increasing more than the EFFECTIVE PRICE.  [TUTOR NOTE less likely: EFFECTIVE PRICE changing rather than volume, BUT remember, the EP can change if larger or smaller discounts applied to the cover price even if the cover price does not change]…..

The results do not benefit from an increase in the cover price as 2018 and 2019’s performance did. The Cover Price has not changed since 2017 and the change in EP has remained unchanged /  is due to an increase / decrease in discounts.  The performance continues the trend of growth since 2016, although at an increasing / decreasing rate OR reverses the trend of growth since 2016, with the first decrease being recorded. 

AD WAS THE WORST PERFORMING STREAM WITH revenue increased / DECREASED by £xxk (yy%) to £zzzzzk  and is better / worse / similar to the industry which anticipated a general decrease which has been made worse by the COVID-19 pandemic with 10% of industry AD revenues expected to be lost during April and May 2020. Circulation figures are critical for AD revenues and MS circulation grew / decreased by xx% to xxxk and remains above / is now below the industry threshold of 2 million. The performance continues the downward trend since 2016, although at an increasing / decreasing rate   OR reverses the trend of decline since 2016.

 SR IS THE BEST PERFORMING STREAM WITH revenue INCREASING / decreasing by £xxk (yy%) to £zzzzzk  as expected due to the quality or the reports into COVID-19 coupled and the reputation for producing high quality and independent reports. The performance continues the UPward trend since 2016, although at an increasing / decreasing rate   OR reverses the trend of growth since 2016.

[TUTOR NOTE: Whilst we have “guessed” the best and worst performing stream, this could be MS so you need to be aware and amend accordingly]

These changes result in MS increasing / decreasing from 51.9% to xx%, AD increasing / decreasing from 19.5% to xx% and SR increasing / decreasing from 29.0% to xx%. This change follows a similar trend  / reverses the trend seen since 2016 with AD decline being offset by the growth in SR and MS remains the largest stream but for the first time since 2016 accounts for less than 50% of the revenue. There is a high level of interdependencies between the streams, with SR content being used by MLE and circulation figures assisting with AD revenues, however the change in the mix away from AD revenue, which has few related cost of sales, will depress overall gross profit margins.

Gross profit

The changes in this section need to be tailored to the information in the exam paper. We have taken the most likely approach, but you will need to amend if the Exam Paper informs you of specific events which may have impacted the results.

Total GP increased/decreased by £xxk (yy%) to £zzzk but / and GP margin increased / decreased from 64.6% to yy% as the sales mix moved away from AD revenue which has few related cost of sales and due to the high fixed cost base meaning the change in circulation figures. The change in MS revenue has little impact on COS and therefore a high impact on gross profit margins. 

Overall COS increased/decreased by £xxk (yy%) to £zzzk as Contributor costs increased / decreased by £xx (yy%) to £zzzk due to the [REASON e.g additional use of Stringers and external consultants required to write content to enable the SR growth as the in-house team was near its capacity]. Production costs increased/decreased by £xxk (yy%) to £zzzk and are considered “stepped fixed” meaning they are not linked to small changes in circulation or revenue.

Operating profit 

OP increased/decreased by £xxk (yy%) to £zzzk but / and OP margin increased / decreased from 64.6% to yy%. [TUTOR NOTE: YOU MUST NOW LINK THIS BACK TO THE MOVEMENT IN GP (£). IF GP HAS DECREASED AND OP HAS INCREASED YOU NEED TO STATE THIS e.g. despite the decrease in GP, this has not reduced OP levels due to cost savings OR the growth in GP has not fully been reflected in OP due to the increase in other operating costs.]  

Marketing costs increased / decreased by £xx (yy%) to £zzzk due to the SPECIFIC CAMPAIGN / CANCELLATION OF EVENTS. Marketing is an important investment for magazine publishers, often spending the same on marketing as they receive from advertisers, and there could be an impact on future circulation and revenues.  Distribution costs OP increased/decreased by £xxk (yy%) to £zzzk and are more linked to changes in circulation rather than revenue as the average cost per copy remained unchanged.

Net cash inflow / outflow (ONLY INCLUDE IF EXAMINER HAS ASKED FOR THIS AS PART OF THE REQUIREMENT)

Net cash inflow / outflow was £xxxk increasing / decreasing the overdraft from £193k to £xxxk leaving more / less headroom to the £200k overdraft limit. This is different to the change in operating profits due to [MAIN REASON e.g. investment  in P&E or Working Capital].

Receivable days improved / worsened for from 52.4 days to xxx days due to [REASON e.g. Higher level of government SR work with 60 day terms / timing at year end with a commissioned report]

Payable days increased / decreased from 32.3 days to yyy days due to [REASON e.g. in order to manage the cash flow within the overdraft limit / something in the exam / timing at the year end].

£xxxk was spent on P&E to improve [STATE e.g. IT  to enable improved security for online users] 

TUTOR NOTE: Deferred income change / days – include if it is significant e.g. if there was a major 2019 Christmas influx or some special offer conducted by Beal to get people to pay annually in advance to assist cash flow.

Watch out for something unusual around the year end that has caused one of these days to be higher or lower than normal. Often these can be purely timing and not indicative of a major underlying problem.

You will then need to go and discuss the Twist in R1. For this section, remember to include:

• Brief description of the issue and the parties involved
• Results from any calculation stating the impact on the overall management accounts / adjustment required to the management accounts.
• Recommendations on what to do immediately and in the future to prevent the issue reoccurring.
• Any other relevant points given to you in the exam.

Conclusions & Recommendations

Overall revenue increased xx% to £yyk with SR growth offsetting declines in MS and AD. MS revenue decreased, for the first time since 2016, by xx% to £yyk as circulation fell to below 2m following the cancelation of a corporate accounts due to COVID-19 and EP was unchanged.

Gross profits increased xx% to £yyk but GP margins decreased to yy% as the sales mix changed. AD has very few COS and whilst its revenue decline was offset by SR’s revenue growth, the use of stringers increased contribution costs by xx% to £yy and overall COS by xx% to £yy, higher than the change in revenue

Operating profits decreased by xx% to £yyk and OP margins decreased to yy% as marketing costs more than offset the increase in gross profits. Net cash flows improved by £xx% due to a fall in fixed asset investments, leading the overdraft falling to £xx

The TWIST could lead to a further reduction in OP of £xxx due to REASON.

We recommend the board: [TUTOR NOTE – WE HAVE GIVEN 7 HERE, BUT SUGGSET YOU WRITE 4 TO 6 IN TOTAL -> YOU ALSO NEED TO TAILOR RECS TO THE SCENARIO AS OUR ONES ARE GENERIC IN ADVANCE OF INFORMATION GIVEN TO YOU IN THE EXAM]

• Considers allocating COS to revenue streams to improve GP analysis
• Develop strategy to minimise loss of advertising revenues
• Review reason for fall in circulation and commence a campaign to attract back lost subscribers and new subscribers
• Review changes to cover price, which is now overdue an increase
• Review in-house contributor capacity and invest in additional resources to minimise the use of more expensive stringers.
• Determine method to monitor marketing ROI due to its high spend
• Review likely ongoing impact of COVID-19 on renewals / advertising spend