Assessment Task: In your capacity as the new Chief Operating Office, prepare a report to the group of investors in which you analyse the potential target aquisition from a commercial viewpoint. Your report will identify, explain, critique and recommend appropriate cost accounting and performance management techniques and models.Specific Requirement Guidelines : Formulate a suitable and appropriate Mission Statement. ( 400 words) Conduct and discuss an Environmental Analysis based on the data
provided and your own wider analysis.( 500 words) Please note that although some ratio calculations may be useful, a
detailed ratio analysis is SPECIFICALLY
NOT REQUIRED. ( calculation) the references has to be in Harvard style, please avoid using late date of resources , from 2014-2017 will be great .at least one page and a half of referencing is required. please find the attached ( the case study)Introduction
Following a number of meetings with a group of investors, you have agreed to take on the post of chief operating
officer (COO) in a newly formed company. The company has been established as the investors wish to acquire a
commercial broadcasting company within the EU, and a potential acquisition has been identified. The proposed
acquisition is a listed company. Based on the most recent financial statements, summarised financial information has
been prepared along with the industry averages for all companies within the EU, and is provided in the Appendix.
The investors’ intention is that the acquired company will continue to be funded by a mixture of equity and debt.
As the investors will not be involved in the day-to-day management of the company, one of your key tasks is to ensure
that the management team is fully aware of the importance of measures of performance. In particular, you wish to
increase awareness of the measures which are likely to be used by both the investors and lenders to assess
performance and how the management team can use a mission statement and the balanced scorecard to improve
performance.
You have been requested to prepare a report to the investors covering the following issues:
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how the company’s published financial statements might be used to assess performance by investors, managers
and lenders;
how the company’s performance can be monitored using internal management information;
the contribution of a mission statement to improving organisational performance.
Investors’ objectives
The investors intend to allow a high degree of autonomy to the management team, within a framework of agreed
strategic objectives. Specific objectives have not yet been agreed, apart from a desire to achieve significant and
profitable growth in revenue.
Based on your discussions with the investors and your knowledge of the industry, you have obtained the following
information about the potential acquisition and the industry.
Business operations
Most commercial broadcast businesses operate across a number of communication media. The most significant sector
is television broadcasting. Radio broadcasting is also an important sector in most cases. In recent years, the emergence
of new technologies has provided opportunities for additional revenue generating sectors. To some extent, these have
been driven by the move from analogue to digital broadcasting. While this brings opportunities, it means that the
audience for each sector has become more diverse, as more choices are available to the television viewer/radio listener.
Three significant examples of this (digital recorders, on-demand programming and internet based broadcasting) are
considered below.
In both television and radio broadcasting, some programmes are produced by the broadcasting company, while others
are bought in from independent production companies. This means that each broadcaster can provide a portfolio of
programmes in which part of the programming can be tailored to reflect the preferences of a regional audience, as
well as offering programmes with broad – indeed even international – appeal.
In general terms, internally produced programmes cost less than bought-in programmes as, in many cases, the latter
have already achieved a degree of success in another region. This success is likely to increase interest in the
programme, and consequently the potential to generate advertising revenue, leading to the relatively high purchase
cost.
Examples of both of these can be seen by considering sports programmes. Regional preferences can be catered for
through programmes devoted to regional competitions, or those sports with a strong following in specific regions. This
can be complemented by broadcasting international competitions, such as matches from the UEFA Champions
League.
Both types of programme are initially recorded in the financial records at cost and are treated as inventory prior to
transmission. When a programme has been transmitted, the cost is written off to the income statement. For those
programmes which are produced in-house, ‘cost’ is calculated as directly attributable materials and labour, plus a
proportion of overheads.
Licensing
Both television and radio broadcasting is only possible under a licence granted by regulatory authorities. It is because
it is generally easier for an existing licensee to retain a licence than for a new company to be awarded a licence that
the investors have decided to acquire an existing company. This is seen as a cost-effective alternative to establishing
a new company, which would then apply for a licence.
The activities of commercial broadcasters are therefore highly regulated and a breach of regulations is likely to result
in significant fines. Serious breaches could lead to a licence being withdrawn or a renewal being refused.
In the financial statements, licences are treated as intangible assets. They are initially recognised at cost. Most of the
licences are deemed to have an indefinite useful life and are therefore not amortised. The remainder are amortised
over the useful life of the licence.
Licensing terms are based on the EU ‘Television without frontiers’ Directive (TWF). Under this directive, broadcasting
companies must comply with a number of requirements. The key requirements are:
•
•
•
•
Free movement
Broadcast quotas
Safeguarding of public interest objectives
Advertising and sponsorship.
Free movement
Throughout the European market, Member States must take steps to ensure that television programmes from all other
Member States are freely available. However, this requirement may be set aside if programmes are deemed to infringe
the public interest objectives.
Broadcast quotas
The directive has several requirements in this area. The first is that excluding broadcast time relating to news, sport
and several other categories, the majority of broadcast time is used for European-produced programmes.
A second is that at least 10% of transmission time or the programming budget must be reserved for European works
from independent producers.
Public interest objectives
There are a number of elements to this aspect. These include the need to protect minors and consumers, to preserve
cultural diversity and to provide a right of reply.
Advertising and sponsorship
This is an area of considerable importance. On the one hand, it is the means by which a commercial broadcaster
generates revenue whilst, on the other hand, there are clearly public interest issues to be considered. One of the ways
in which public interest issues are reflected is that advertising of certain goods (e.g. prescription medicines) i s
prohibited.
Further public interest protection is exercised by controls over the amount and frequency of advertising which is
permitted.
The sponsorship of programmes is permitted, subject to compliance with certain criteria. Sponsorship allows
advertisers to be related to particular programmes, with a specific reference to the advertiser’s products before and
after the broadcast of each segment of a programme.
Product placement
This is the practice of paying for a specific product to be clearly identified when it is used in a programme. Whether
product placement should be permitted is a controversial issue. Although illegal in a number of European Member
States, it is widely used in the US and in films (for example the marque of car associated with a specific character in
the film).
While product placement is seen as a means of generating revenue, there are significant concerns about the possible
impact on programme content and editorial control – and hence programme quality.
The impact of new technologies has prompted discussion on whether the current position is detrimental to
broadcasters.
Impact of new technologies
It is widely expected that new technologies, in particular digital and internet broadcasting, will continue to be
influential. In radio broadcasting, the combination of the internet and localised stations means that although
programme content – and therefore advertising – can be targeted to a specific audience, the programme can be heard
by a world-wide audience.
In recent years, television broadcasting has been affected by viewers choosing to ‘time-shift’. It is widely expected that
this trend will increase. Since the introduction of the video recorder, it has been possible for viewers to watch a
programme at a time of their own choice, as opposed to the time chosen by programmers. This trend has been
developed further with the advent of digital recorders. Such devices not only allow viewers to choose when they watch
a programme, but also to pause live TV. This means that advertising breaks can effectively be removed from the
viewing experience. Consequently, although a commercial broadcast may be viewed by a very large number of people,
the advertisements may not be seen by a significant number of them.
A further development in this area has been the introduction of internet based, on-demand scheduling. Although
offered by a public service broadcaster, the BBC i-player is a leader in this field. This service, which is now also offered
by a number of commercial companies, allows viewers to download programmes after they have been broadcast in
the traditional manner and to view them at a convenient time.
These developments mean that the impact of advertising may be significantly reduced. Viewers and listeners can
choose to remove advertising entirely from the programming they receive, while time-shifting means that they may
receive date specific adverts (e.g. for special offers by retailers) when the advert is no longer relevant. This is leading
to a fall in fees that can be demanded for broadcasting advertisements and thus a fall in the revenue earned by
broadcasters. In this context, one response within the industry is to seek a change in the status of product placement.
Staff roles
It is widely recognised that two groups of staff (production staff and presenters) play a key role in the success of a
broadcaster, as they directly affect the quality of programmes.
Production staff contribute in two main ways. The first is by generating ideas – both for new programmes and ways
in which existing programmes can be improved. The second is in producing programmes in a format and style that
will attract viewers and listeners.
As the ‘personality’ that viewers and listeners recognise, presenters have a clear influence on the popularity of
programmes – and hence revenue.
To ensure that both of these groups are provided with appropriate rewards, you propose to include an element of
performance related pay in the remuneration packages of these groups.
Advertising revenue
Revenue from advertising, which is subject to a period of trade credit, is recognised as income when the advertisement
has been broadcast. The price which can be charged to advertisers is directly related to the anticipated viewing figures
of the programme during which the advertising is transmitted. As discussed above, programme appeal and quality
are important influences on viewing figures.
Appendix
Summary Financial Information
average
Year ended 30 June
Income statement summary
Revenue
Costs
Profit before tax
Taxation
Profit for the year
Dividends paid
Retained profit for the year
Analysis of revenue
Radio broadcasting
Television broadcasting
Analysis of costs
Purchase of programmes
Programme production costs
Sales costs
Staff costs
Depreciation
Operating lease rentals
Interest
Statement of Financial Position
Property plant and equipment
Intangible assets (licences)
Current assets
Inventories
Trade and other receivables
Cash and c a s h e q u i v a l e n t s
Total assets
Equity and liabilities
Ordinary share capital (€1 per share)
Retained earnings
Non-current liabilities
Bank loans
Provisions
Deferred tax liability
Current liabilities
Trade and other payables
Bank loans
Taxation
Total equity and liabilities
Potential acquisition
Industry
2016
€000
2015
€000
2016
€000
2015
€000
107,161
82,591
24,570
4,575
19,995
2,399
17,596
102,875
80,939
21,936
4,346
17,590
2,022
15,568
284,844
198,218
86,626
16,753
69,873
5,200
64,673
271,958
196,898
75,060
14,533
60,527
4,300
56,227
40,507
66,654
107,161
40,327
62,548
102,875
159,513
125,331
284,844
157,736
114,222
271,958
12,389
27,585
14,371
22,999
1,493
1,834
1,920
82,591
13,760
25,901
13,436
22,630
1,374
1,619
2,219
80,939
25,372
75,521
29,336
59,797
3,195
1,544
3,453
198,218
26,384
73,837
27,960
60,343
2,974
1,715
3,685
196,898
9,533
155,856
165,389
10,572
149,632
160,204
31,319
331,563
362,882
21,822
299,544
321,366
382
29,552
418
30,352
195,741
399
27,841
367
28,607
188,811
1,244
76,843
532
78,619
441,501
1,185
70,644
488
72,317
393,683
7,500
75,427
82,927
7,500
57,831
65,331
24,500
281,383
305,883
22,850
213,366
236,216
28,097
418
46,781
75,296
33,972
401
50,268
84,641
42,955
643
25,299
68,897
54,941
783
32,841
88,565
21,995
11,634
3,889
37,518
195,741
23,743
11,315
3,781
38,839
188,811
45,954
4,852
15,915
66,721
441,501
50,483
5,194
13,225
68,902
393,683
Average market price per share
€18·52
€16·73
€21·85
€19·63
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