BRIAN LIMITED All amounts are VAT exclusive and In USD unless stated otherwise. Background Brian Limited (Brian I is a long-established publisher of newspapers and provider of web media. It is based in Harare and has been listed on the Zimbabwe Stock Exchange since 2006. The company has three operating divisions which are managed from its head office. These are the Newspapers Division, the Web Division and the Advertising Division. Newspapers Division The Newspapers Division publishes two daily newspapers (The Zimpaper and Daily Business). The Zimpaper is a national daily newspaper that is the biggest newspaper in Zimbabwe in terms of daily circulation whilst the Daily Business focuses on the business niche and is mostly sold in urban cities and towns. The Division has three offices and one printing site. Web Division The Web Division develops websites and currently maintains 15 websites which it owns. Some of these websites are much more popular in terms of the number of "hits\" they receive than others. Web material is an increasing part of Brian '5 business. In the last ten years, the Web Division has developed an online version of all the newspapers produced by the Newspapers Division. Advertising Division The sale of advertising space is undertaken for the entire company by the Advertising Division. Therefore, advertisements which appear in the print media and on the web pages produced by the Newspapers Division and the Web Division respectively are all handled by the Advertising Division. BRIAN LIMITED Group Headquarters In addition to the three operating divisions, Brian also has a head ofce, based in Harare, which is the group's corporate headquarters where the company's Board of Directors hold their board meetings. The main role of Brian '5 headquarters is to develop and administer its policiesand procedures as well as to deal with its group corporate affairs. Mission statement Brian updated its simple mission statement in 2011. Brian '5 mission is "to be the best news media organisation in Zimbabwe, providing quality reporting and information on Zimbabwean and world-wide events\". Strategic objectives Four main strategic objectives were established in 2015 by Brian '5 Board of Directors to replace those updated in 2011. These will be the main focus for the groop up to 2025 and they are to: 1. Meet the needs of readers for reliable and well informed news. 2. Expand the geographical spread of Brian '5 output to reach as many potential newspaper and website readers as possible. 3. Publish some newspapers which promote Zimbabwe indigenous languages. 4. Increase advertising income so that the group moves towards offering as many news titles1 as possible free of charge to the public. Financial objectives In meeting these strategic objectives, Brian has developed the following financial objectives: i. To ensure that revenue and operating profit grow by an average of 4% per year. ii. To achieve steady growth in dividend per share, averaging 33% per annum. 1 News titles are essentially news brands {paper or digital} run by the company. BRIAN LIMITED iii. To maintain gearing below 40%, where gearing is calculated as debt/(debt plus equity) based on the market value of equity and the book value of debt. The newspaper printing process 1. Content gathering Typical newspaper content can be divided into two parts: News/Information and Advertisement. News production starts with the reporters going out to their respective beat to gather stories and cover events and the marketing department getting advertisement into the newspaper on daily basis. Each reporter works with a particular desk in the newsroom. Some ofthese desks are: Metro desk, Sport desk, Business desk, Political desk, Education desk and others. After stories are gathered, the Sub Editors are saddled with the responsibility of editing copies submitted by the reporter using a red pen or red font colour, the Chief Sub Editor uses blue while the Editor-in-Chief uses green. 2. PI'E- ress Pre-press is where photos are edited, advertisements are created and composed and the whole pages of the newspapers are laid-out and designed. After stories have been edited, the editor and other sub-editors will sit in an editorial conference to determine what goes inside the paper for the day. Then, each sub-editor is expected to plan his pages if possible. The marketing department also will forward the advertisements that have been paid for with specification of the pages allotted to the advert. All these will be forwarded to the editorial department so as to add these pages in their planning process. The newspaper planning is done on a dummy sheet (a blank sheet folded as a pre-print test) to give a prototype of the final look of each page. This is called page planning. After the planning, the editorial department forwards the already planned pages to the graphic section where the dummy sheets are transformed to a meaningful digital form. BRIAN LIMITED 3. m The printing process is the main process step d uring newspaper production. Quickness and reliability with equivalent time producing are the cornerstones in the production and processing of print products. The typical newspaper press is divided into two parts: printing and folding. 3.1. Printing The rst functions of a newspaper press are loading and unwinding of newsprint reels. These functions are provided by the paster. Pasters unwind paper reels and automatically change paper reels at full production speed. Often pasters are placed below the printing towers. The towers often consist of four printing units to print Cyan, Magenta, Yellow and Black ink onto the newsprint. The newsprint web travels upwards in the printing tower during which the colour is applied to it on both sides of the reel. Usually, for every page there is one individual printing plate per colour. This printing plate is mounted onto the plate cylinder within the printing unit which again is part of the printing tower. The printing units can notjust print one page like in digital printing, instead printing towers in newspaper presses can print up to 24 broadsheet pages in full colour. If the press consists of several towers many more pages can be printed at once. 3.2. m The folder starts where the printed webs come together. The folder can produce ribbons and combine these ribbons in such a way that the pages are sorted on top of each other. The folding process starts in the so-called super structure and ends in the main folding units at the end of the press process. The ribbons are Cut in such a way that the pages of the newspaper are separated from each other and the folder lays down the newspaper copies onto the delivery belt. 4- m The copies are collected on the delivery belt and usually transported to the mailroom using a gripper conveyor system. The post-press area is also often called the mailroom because here the copies are prepared for mailing to the customers. Newspaper copies can be bundled directly so that they are ready to be put into a truck for transportation. BRIAN LIMITED Costing system Brian '5 existing costing system is unsophisticated. and the system does not distinguish between the different type of newspapers. The costs include direct materials being newsprint. ink and labour, as well as fixed overhead costs. A single fixed overhead cost pool is used for all other conversion costs related to production exists. Fixed production overhead costs are allocated on the basis of the number of newspapers printed. Although the pages and sizes of newspapers differ the number of newspapers is used as an allocation base. The newspaper division has one printing production line and as a result the newspapers are printed in batches. Standard production batches are 3 000 newspapers of the Zimpaper and 2 000 newspapers for the Daily Business. The difference in batch size arises because more additives to the ink are required during the production of the Daily Business as it is printed on a thicker pink newsprint. Daily Business also requires more labour time compared to Zimpaper. Machines in the production line need to be reset and cleaned after each batch of newspapers has been produced and set-up costs are incurred for each new batch. The following is an extract ofthe Newspaper division budget for the year ended 30 Ju ne 2022 Budget for the year ended 30 June 2022 Notes The Zimpaper Daily Business Number of batches to be 6 000 2 500 produced and sold Selling priceewspaper $0.75 $1.50 Printing Costs per batch: S S Newsprint (paper) 2 200.00 1 800.00 Ink 1 400.00 850.00 Direct labour 350.00 280.00 Overheads i 105.00 74.00 Notes: BRIAN LIMITED i. Budgeted manufacturing overheads for the year ending 30June 2022: 120000-00 m 72 000-00 _ Rental of printing site 88 000.00 m Depreciation of machinery 105 000.00 m Consumable for machinery 150 000.00 _ 13500000 _ 145 00000 Fixed and Variable Total manufacturing overheads 815 000.00 The manufacturing overheads include both fixed and variable costs. Variable manufacturing overheads have been allocated to Zimpaper and Daily Business newspapers following a detailed analysis of production activities and related costs. However, fixed manufacturing Overheads have been allocated to finished products based on the total planned production of the Newspaper Division for the year ending 30 June 2022. No distinction has been made between the newspapers and the fixed overhead recovery rate is the same to produce both Zimpaper and Daily Business. If the newspaper division were to produce 7 000 batches of The Zimpaper and 2 500 batches of the Daily Business during the financial year ending 30 June 2022, the budgeted total manufacturing overheads would be $91.00 per batch of Zimpaper and $74.00 of Daily Business, using the allocation bases described above. An analysis of activities yielded the following information a. The printing machine is the biggest consumer of electricity. b. It takes abOut 30 minutes to print each batch of The Zimpaper and 45 minutes for the Daily Business. c. Consumables are mostly utilised during set up. d. Salaries costs are mostly inturred in packaging and quality control. e. Other costs are driven by the number of newspapers produced. BRIAN LIMITED Outsowcing of printing Alpha Printing which is a specialised printing company has approached Brian with an offer to provide all the printing for their newspapers. The board is currently considering this offer as either a short term or long-term solution. The board is therefore looking for a preliminary assessment of the impact of outsourcing the printing services will have on costs both for the short term and long term. Pachedu In line with the strategic objective to publish newspapers which promote indigenous languages, Brian is considering introducing a new weekly Shona Newspaper - Pachedu. The newspaper will focus on both urban and rural markets and will be published every Friday. Brian will have to commission a new printing press as the current press is already operating at full capacity. The project is initially expected to run for a period of 5 years before a decision can made to reinvest in it in perpetuity. The following information was gathered by the company accountant in relation to this project. 1. Licence Fees: Brian will need to get a licence from the relevant ministry before launching the newspaper. Licencing for newspapers currently includes a once off upfront payment of 5150 000.00 and annual renewals in advance of 510 000.00. The cost of renewals is likely to increase in line with inflation. Brian also paid consultancy fees of $25 000.00 to Mr Mhuru who facilitated the newspaper licence procurement process. Mr Mhuru will be paid a further 55 000.00 when the licence comes out. Mr Mhuru sits on the Broadcasting Authority of Zimbabwe boa rd and will ensure that the licence is processed. 2. Printing Press: Brian will engage a Chinese company to supply the printing press and install it. The Chinese company has given Brian two options for payment ofthe printing press: i. A once off payment of 5300 000.00 payable upfront. BRIAN LIMITED ii. Brian will pay an upfront deposit of 5200 000.00 and the balance of 5150 000.00 over the next 2 years in equal annual instalments. The press will have a useful life of 5 years. 3. Revenue is expected mostly from 2 sources: i. Sales of newspapers: Weekly circulation is expected to fluctuate between 6 500 and 7 500 newspapers initially. The weekly circulation is expected to increase annually by 10% in the rst year to 17.5% by end of the fiveyear period. Ordinarily it is also expected that 5% of newspapers will be provided for free. The price is currently set at $0.50 and will be reviewed halfmy into the project to $1.00. ii. Advertising revenue: An analysis of current trends revealed that normally advertising revenue is a function of the newspaper reach. It is thus expected that advertising will be $2 500.00 for each reach of 10 000.00 newspapers. 4. Brian will employ 150 sales representatives to market and sell the newspaper. These sales representatives are remunerated mainly through sales commission, at a rate of 5% of revenue. 5. Cost of the newsprint (i.e., paper}, ink direct labour and variable overheads is expected to be the same as the Zimpaper and will increase by a rate of 5% annually. 6. 540 000.00 xed overhead will be incurred and are expected to increase by 5% annually. 7. The printing press will be installed in the current factory hoosing the other printing press. It is expected that the new printing press will occupy 25% of floor space. Rental ofthe factory is currently $18 000.00 annually. 8. Financing: To Finance the project, Brian has secured a line of credit from Bank ABC to the tune of 5800 000.00. This loan will attract interest of 10% per annum, which is the market rate and will be repaid in one bullet payment after 5 years. Interest is payable annually in areas. The following is the extraction ofBrian '5 balance Sheet. Notes: BRIAN LIMITED Equity and Liabilities Notes S'OOD Share Capital a 20 000 Retained Earnings 10 000 12% Cumulative redeemable preference I: 15 000 shares Debentures c 8 000 Current Liabilities Creditors d 2 500 Overdraft e 1 400 The issued share capital is made up of 20 million ordinaryshares. The last known listed share price on 30 June 2021 was $1.68 cum -div. The company has just declared a dividend for the 2021 year of 18 per share. The dividend is expected to grow at a rate of 6% per annum. The 12% cumulative redeemable preference shares are redeemable at par in ten years' time. The dividend for the current year has just been paid and preference shares in a similar risk class to those of Brian Limited are yielding 14% per annum. The debentures which are currently trading at par are irredeemable and their current market yield is 15%. business. The interest rate of the overdraft is currently 12%. . Creditors are considered as significant and permanent source of finance for the The tax rate is 24.72% and annual inflation rate is expected to be 12%. BRIAN LIMITED Required Sub- Total total a. Discuss key risks faced by Brian and provide the specific actions 12 13 that the company might implement to mitigate those risks. Communication skills - presentation and layout 1