247 others answered this question

Question 1v

Flack Supermarkets (Flack) is a multi-national listed business operating in several developing countries. The business is divided into two divisions: Metro, which runs smaller stores in the densely populated centres of cities and Hyper, which runs the large supermarkets situated on the edges of cities. Flack sells food, clothing and some other household goods.

Competition between supermarkets is intense in all of Flack’s markets and so there is a constant need to review and improve their management and operations. The board has asked for a review of their performance report to see if it is fit for the purpose of achieving the company’s mission of being:

‘…the first choice for customers by providing the right balance of quality and service at a competitive price. We will achieve this through acting in the long-term interests of our stakeholders: earning customer loyalty, utilising all our resources and serving our shareholders’ interests.’

This report is used at Flack’s board level for their annual review. The divisional boards have their own reports. Also, there has been criticism of the board of Flack in the financial press that they are ‘short-termist’ and so the board wants your evaluation of the performance report to include comments on this. A copy of the most recent report is provided as an example at Appendix 1.

The board is considering introducing two new performance measures to address the objective of ‘utilising all our resources’. These are revenue and operating profit per square metre. The CEO also wants an evaluation of these two measures explaining how they might address this aspect of the mission, what those ratios currently are and how they could be used to manage business performance. There is information in Appendix 1 to assist in this work.

There have been disagreements between Flack’s divisional management about capital allocation. The divisions have had capital made available to them. Both sets of divisional managers always seem to want more capital in order to open more stores but historically have been reluctant to invest in refurbishing existing stores. The board is unsure of capital spending priorities given that the press comments about Flack included criticism of the ‘run-down’ look of a number of their stores. The board wants your comments on the effectiveness of the current divisional performance measure of divisional operating profit and the possibility of replacing this with residual income in the light of these problems.

As the company is opening many new stores, the board also wants an assessment of the use of expected return on capital employed (ROCE) as a tool for deciding on new store openings, illustrating this using the data in Appendix 2 on one new store proposal. The focus of comments should be on the use of an expected value not on the use of return on capital employed, as this is widely used and understood in the retail industry.

Finally, the CEO has proposed to the board that a new information system be introduced. She wishes to spend $100m on creating a loyalty card programme with a data warehouse collecting information from customers’ cards regarding their purchases. Her plan is to use this information to target advertising, product range choices and price offers more efficiently than at present.

Required:

Write a report to the board of Flack to:
(i) Evaluate the performance report of Flack, using the example provided in Appendix 1, as requested by the board. (14 marks)

ACCA APM-(P5)-Past-papers-June-2016-Appendix 1-2