The May 2023 CIMA Management Case Study pre seen materials were released on 31st March and you can find the official pre-seen materials from CIMA here.
You are given the role of Finance Manager for a travel company called Happywell Holidays, they are a listed company on the Westland stock exchange and represent one of the biggest travel companies in the country.
For this case study exam, I will be taking a look at the financial statements (mainly the P&L) and see what story we can piece together on Happywell Holidays and the travel industry itself.
Financial Statement Analysis
I’ve pulled together the consolidated P&L for Happywell alongside their biggest competitor in Westland “Mangusair”. To give more context to the numbers, I’ve calculated the profit margins to see a) what’s happening compared to the previous year while also benchmarking against Mangusair.
Revenue Growth but Failing Profit Margins
The headline here is the impressive revenue growth of 6% in 2022 by Happywell, which is over three times more than their biggest competitor managed, however, scrolling further down the income statement the costs have increased at a higher rate which actually saw negative variances on all of Happywell’s profit margins in comparison to 2021.
This snapsnot of the variances from 2021 to 2022 tell us that while the Revenue growth by Happywell was impressive, that growth was already eaten why by the cost of revenues increase – that’s even before we consider the additional selling and advertising expense incurred.
Benchmarking against competitors is a brilliant way to give context into your own operating results. The focus area here for Happywell should be understanding what’s driving this cost of revenues variance and then drawing up a plan to reduce these, if possible, in the future.
Solid Performance in a Tough Industry
We are told on page 12 of the pre seen materials that Happywell have thrived due to their focus on quality, this is despite entrance of many low cost competitors.
Many tour operators failed because of high operating costs. Happywell succeeded by concentrating on
the quality of its holiday packages and of its customer support. The company continues to provide customers with a good quality experience.
Its holidays are regarded as offering value for money, even though they are not necessarily the cheapest. Passenger numbers have been growing steadily despite the availability of cheaper tour operators.
While Happywell suffered a drop in profitability in 2022 as illustrated above, their gross profit (14% v 9%) and operating profit (4% v 2%) margins are still someway ahead of their rivals.
Which leads me to think that their strategy on delivering quality holidays and customer service, rather than cheap no-frills holidays is proving to be a very profitable one in a tough industry.
A reminder we are told that “Many tour operations failed because of high operating costs”.
Physical or Online Presence?
We can see with our own eyes across the high streets in England that bricks and mortar shops are becoming increasingly obsolete. To that effect, we are given forecasts in the pre-seen materials that consumers will be reverting more and more to online bookings for holidays, which is a long term risk to Happywell Holiday’s given that they OWN over 300 stores across Westland.
On one hand, booking a holiday face to face with a specialist travel agent and adviser will give a lot of consumers much more confidence, so there will always be a need for Happywell to have a physical presence. However, their operations could be scaled down in the coming years with a focus more on the online consumer experience.
This would no doubt lead to a lower cost base for the company.
Above are a few key themes and thoughts I put together based on what the financial statements were telling us. Hopefully this get’s your pre-seen analysis on Happywell Holidays off to a good start, so you can pass the CIMA MCS exam first time!
CIMA MCS May 2023: Astranti Case Study Course
I used the full Astranti MCS case study course to pass the MCS exam first time many years ago, they have improved the course even further since then. The course includes;
- Pre seen materials pack (analysis, top 10 issues, industry examples & 30 questions)
- 7 x mock exams with a debrief video.
- 3 x mock exams with feedback
- 3 x LIVE and recorded master classes
- Syllabus theory revision series
- Exam technique series
- Ethics and questions packs
- Tutor feedback
- Mentor support
- Pass guarantee & money back guarantee