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Topic: Financial Management
Pages/Words: 1 Page/250 Words
Introduction
The Royal ltd is a publisher of a daily newspapers based in Gauteng, South Africa. It also provides web Media to the world wide audience. It has been listed on the Johannesburg stock exchange since 1994. The Royal has three distinct divisions, that is, the Newspapers, Advertising and the web divisions. The divisions are discussed below as follows:
The Newspaper division
This division has two printing sites and three offices. The royal publishes one Sunday Newspaper and three daily Newspapers in South Africa. The three offices edit the Sunday Newspaper and the three daily Newspapers. The Advertising division owns two subsidiary companies namely; Chronicle and Herald. Chronicle and Herald are involved in publishing. Chronicle is based in Botswana within the SADC region and Herald is based in Ghana which is outside the SADC region. All printing for the division’s publications is done at the two printing sites, except for the publications produced by Chronicle and Herald. The two subsidiaries have their own printing sites.
The Web division
This division owns 200 websites which it maintains and develops. The development and maintenance of web material has become an important part of the business for “The Royal ltd”. During the past 10 years the division developed online versions of all the newspapers produced by the Newspaper division. Some websites are more popular than others. This is measured by the number of hits they receive
The Advertising Division
This division handles the sale of advertising space for the whole company (The Royal ltd). That is, the advertisements that appear in the print media and web pages produced by the Newspaper division and the web division are all handled by the Advertising division.
Headquarters of the Group
The Royal ltd has a head office that is based in Sandton. This is in addition to the three operating divisions that it has. The board of directors sits at the head office in Sandton. The headquarters deal with the group’s corporate affairs. The headquarters also administers and develops the group’s policies and procedures.
Mission statement
In 2015, The Royal established the following mission statement “To be the leading news media organization in Africa that provides quality reporting and information on African and World-wide news”.
The strategic objectives
In 2015 the board of directors established the following objectives:
- To provide reliable and well informed news that meets the needs of the readers
- To reach as many potential website and Newspapers as possible
- To increase advertising income so that the group moves towards offering as many news titles as possible free of charge to the public
Financial Objectives
- Revenue and operating income to grow by 4% per year
- To have a steady growth in dividends per share
- To maintain a gearing below 40%
Forecast revenue and operating profit
Year ended 31 December 2021
Forecast revenue R2 800 000 000
Forecast operating income R 730 000 000
The figures were extracted from the forecast income statement for the year ended 31 December 2021
Divisional performance information
The following financial information is available for each division for the past three years:
| The Newspaper Division | Year ended | Year ended | Forecasted |
| 31-12-19 | 31-12-20 | 31-12-21 | |
| External Revenue | R910 000 000 | R940 000 000 | R940 000 000 |
| Revenue from internal transfers | R 900 000 000 | R 910 000 000 | R960 000 000 |
| Net operating income | R 450 000 000 | R 460 000 000 | R480 000 000 |
| Fixed assets | R4 200 000 000 | R4 900 000 000 | R 5 480 000 000 |
| Current Assets | R 40 000 000 | R 80 000 000 | (R10 000 000) |
| The Web Division | Year ended | Year ended | Forecasted |
| 31-12-19 | 31-12-20 | 31-12-21 | |
| Internal transfers | R 550 000 000 | R 600 000 000 | R660 000 000 |
| Net operating income | R 100 000 000 | R 130 000 000 | R160 000 000 |
| Fixed assets | R370 000 000 | R400 000 000 | R 430 000 000 |
| Current Assets | R 10 000 000 | R 10 000 000 | (R20 000 000) |
| The Advertising Division | Year ended | Year ended | Forecasted |
| 31-12-19 | 31-12-20 | 31-12-21 | |
| External Revenue | R162 000 000 | R180 000 000 | R186 000 000 |
| Net operating income | R 100 000 000 | R 180 000 000 | R190 000 000 |
| Fixed assets | R30 000 000 | R60 000 000 | R 70 000 000 |
| Current Assets | R 10 000 000 | R 10 000 000 | (R20 000 000) |
| Head office | Year ended | Year ended | Forecasted |
| 31-12-19 | 31-12-20 | 31-12-21 | |
| Net operating income | R 80 000 000 | R 90 000 000 | R100 000 000 |
| Fixed assets | R370 000 000 | R390 000 000 | R 430 000 000 |
| Current Assets | R 10 000 000 | R 10 000 000 | (R10 000 000) |
Notes:
- The advertising division remits advertising revenue to both the Newspapers and the Web divisions
- All of the web division’s revenue comes from advertising
- The newspaper division’s revenue and operating income include those earned by Herald and Chronicle. The forecasted revenue for the year ending 31 December 2021 for Chronicle is R200 000 000 and for Herald is R40 000 000
Additional information:
Newspapers Division
Chronicle is a wholly owned subsidiary. It was acquired in 2015. The financial statements of Chronicle are translated into South African Rands. These are consolidated into Royal ltd group financial statements. The financial statements are included in the newspaper division’s financial statements for the purposes of reporting. A month after chronicle was acquired by Royal ltd, it launched a weekly newspaper called the pan-African. It is produced in Botswana and distributed throughout Africa. The board believed that the newspaper would become popular as it provided weekly African news. However, sales have been disappointing.
Herald publishes local newspapers in Ghana. It is also part of the Newspapers division. It is 80% owned by the Newspaper division. It was purchases in 2013. Herald is very profitable. It is produced at low cost.
The journalists used by the Newspaper division incur very high costs to carry out their duties. These costs have risen significantly during the previous years.
There has been significant capital investment in the Newspaper division since 2016. The division has modernised the printing press. This has improved the quality of the output and efficiency of the printing process. The customers have indicated that they are very satisfied with the product. The increased mechanisation and efficiency has reduced costs. It has also led to the reduction in the number of employees operating in the printing press. Consequently, some staff in the division has expressed dissatisfaction. However, employees in other divisions have not been affected.
Web Division
The revenues from the web division are generated through advertising. This is revenue is generated from sales of advertising space in the web pages by the Advertising Division. Currently, there is no charge to access the newspapers. The newspapers are shorter versions of the printed newspapers. The comments from the public about the websites have been very positive. The division is currently undertaking a review of all its costs, particularly the costs relating to employees, website development.
Advertising Division
This division pays advertising revenue to both the Newspaper division and the web division. The payment is done after the advertising division has deducted its commission from the advertising revenue. This division also offers advertising services to corporate clients. The advertising services include television and radio. The advertising division provides pop up advertising on websites.
Extracts from Royal ltd forecast group financial statements
Group forecast Income statement for the year ending 31 December 2021
Revenue R 2 800 000 000
Operating costs R 2 070 000 000
Net operating profit R 730 000 000
Interest income R 10 000 000
Interest expense (R110 000 000)
Taxation (R 190 000000)
Forecasted profit R440 000 000
Forecasted Balance Sheet (Statement of financial position) as at 31 December 2021
Assets
Fixed Assets R6 410 000 000
Current Assets
Inventory R 20 000 000
Debtors R270 000 000
Cash and Cash equivalents R20 000 000
Total Assets R 6 720 000 000
Liabilities
Long term liabilities R2 500 000 000
Current liabilities
Payables R460 000 000
Total liabilities R 6 720 000 000
Equity
Share capital R1400 000 000
Share premium R 350 000 000
Retained income R 1 850 000 000
Non- controlling interest R 160 000 000
Total equity R 2 960 000 000
Notes:
- Assume taxation is 30%
- Shares issued are 140 million at R1 each
- The long term borrowing include R830 000 000 of loan capital which is due for repayment on 1 January 2022 and the remainder is due for repayment on 1 January 2029
Reference ID: #getanswers2001266
