final mock – september 2020 · final mock – september 2020 questions time allowed 4 hours...

ACCA

Strategic Business Leader (SBL)

Final Mock – September 2020

Questions

Time allowed 4 hours including reading, planning and reflective time

This exam is an integrated case study with one section containing a total of 100 marks and all tasks must be completed.

All tasks contain Professional skills marks which are included in the marks shown above.

Instructions: DO NOT OPEN THIS EXAM UNTIL YOU ARE READY TO START UNDER EXAMINATION CONDITIONS www.ac

coun

tancyw

alls.co

m

2

Downloaded from www.accountancywalls.com

Join our group for exam Mocks https://t.me/AccaGlobalAccountants

www.acco

untan

cywalls

.com

3

Farmers Market (FM) supermarket chain is based in the country of Arboria. The principal activities of FM are the operation of a network of supermarket stores throughout the country. FM was formed many years ago as a co-operative shop network owned by a regional group of farmers.

You are a management consultant, heading up a team of business professionals that has been commissioned to provide advice on a range of strategic issues for FM. Part of your brief requires the preparation of a consultancy report to help the board of directors plan the future direction of the business.

You are a qualified Chartered Certified Accountant and your colleague, Suresh Patel, is a company Researcher and a part-qualified Accountant.

The current date is June 20X7.

You and your team have collected and analysed the following information about the group to help you prepare the consultancy report and associated tasks.

Exhibit 1: Extract from a report prepared by Suresh Patel outlining FM's history and make-up of the Arborian supermarket industry

Exhibit 2: Article from the Arbor Today newspaper titled 'Have Arborians fallen out of love with the supermarket?'

Exhibit 3: Arborian government information sheet 4560 (extract) released by the Arborian government

Exhibit 4: FM's mission statement taken from the company's website

Exhibit 5: A memorandum from Gary Bourne, FM's Marketing Director proposing the introduction of a customer loyalty card and data analytics software

Exhibit 6: Extracts from Itrus's financial statements and annual report

Exhibit 7: Email from Anya Khan, FM's Procurement Director outlining the procurement options available to FM

Following your findings, you are now starting to prepare the consultancy report and associated tasks for FM.

The case requirements are included in the tasks shown below:

1 FM's management team are aware that the business has certain weaknesses. For example, it acknowledges that it needs to streamline its supply chain and achieve cost savings. It also recognises that it has failed to exploit technological advances in product control, movement and storage. However, before making changes, the management wishes to better understand the strategic position of FM. The senior management team would like to you to provide them with an analysis of the external factors facing FM from four perspectives: political, sociocultural, environmental and legal. They are also keen to improve their understanding of the state of competition in the Arborian supermarket industry and have requested that your report includes a section on this matter.

Required

Prepare extracts for your report which:

(a) Analyses the four perspectives of the macro-environment as requested by FM's senior management team. The analysis should include an assessment of the implications of these factors for FM. (16 marks)

Professional skills marks are available for demonstrating analysis skills in reviewing the macro-environment and its implications for FM. (4 marks)

(b) Evaluates the state of competition in the supermarket industry in Arboria. (16 marks)

Professional skills marks are available for demonstrating evaluation skills in assessing the state of competition in the industry. (2 marks)

(Total = 38 marks)



www.acco

untan

cywalls

.com

4

2 Heather Potts, FM's Finance Director recently read an article in an industry journal that highlighted the widespread use in business of critical success factors (CSFs), key performance indicators (KPIs), and integrated reporting. She has asked you prepare three slides for a presentation that you have been asked to give to the senior management team. The presentation should focus on how FM could look to make use of CSFs, KPIs and integrated reporting when developing its strategy. To help you with this she has provided you with a copy of FM's mission statement.

Required

Prepare three presentation slides, including detailed supporting notes, to be presented to FM's senior management team that evaluate how FM could make use of CSFs, KPIs and integrated reporting. (12 marks)

Professional skills marks are available for demonstrating communication skills in conveying FM's use of CSFs, KPIs and integrated reporting. (4 marks)

(Total = 16 marks)

3 At the request of Sebastian Lungu, FM's Operations Director, you are now reviewing the memorandum issued by Gary Bourne, FM's Marketing Director and the extracts from Itrus's financial statements and annual report. Although the decision to proceed with Gary Bourne's proposal has not yet been made, Sebastian Lungu has concerns about the financial and ethical elements of the proposal, and has asked for your input.

Required

Prepare a briefing note which:

(a) Provides a financial evaluation of Itrus, highlighting any areas of concern. (16 marks)

Professional skills marks are available for demonstrating scepticism skills in considering the financial evaluation of Itrus. (4 marks)

(b) Discusses the ethical issues raised by Gary Bourne's proposal. (12 marks)

Professional skills marks are available for demonstrating scepticism skills in considering the ethical issues raised. (4 marks)

(Total = 36 marks)

4 You are reviewing the email that you received this morning from Anya Khan, FM's Procurement Director.

Required

Prepare a briefing note which assesses the risks associated with each of the four options and recommends an appropriate risk response to each of the options specified in the email. Justify your recommendations. (8 marks)

Professional skills marks are available for demonstrating commercial acumen skills in assessing the risks and making sound recommendations for responding to those risks. (2 marks)

(Total = 10 marks)



www.acco

untan

cywalls

.com

5

Exhibit 1: Extract from a report prepared by Suresh Patel outlining FM's history and make-up of the Arborian supermarket industry

To: Management consultant From: Suresh Patel Subject: FM history and the Arborian supermarket industry

Farmers Market (FM) – Background

FM was formed over 100 years ago as a co-operative shop network owned by a regional group of farmers. Today, FM operates nationally, and has expanded its operations to offer shoppers a range of non-farming products sourced from a wide range of suppliers. Despite this, FM's senior management are keen that the business remains true to its co-operative roots. All employees are shareholders and receive annual dividends. Customers can also become shareholders and are rewarded with dividends that reflect the value of their spending in the shops. An increasing number of customers are becoming shareholders, reflecting a renewed interest in the country in mutual organisations, such as co-operatives. FM only operates in Arboria and it has no plans to expand overseas. Arboria itself is a wealthy, industrialised country that continues to grow.

Supermarkets in Arboria

When supermarkets were first introduced in Arboria, FM reflected this trend by opening its own supermarkets. However, its supermarkets tended to be (and continue to be) smaller than its well-known competitors and its network of smaller shops was largely retained. In contrast, other supermarkets focused on developing large out-of-town sites serving a large catchment population. In the top ten supermarkets of Arboria, only FM has, in addition, a network of smaller shops. In 20X2 FM was the eighth largest shop and supermarket chain in Arboria. It reported revenues of $10bn, compared to the $40.5bn revenue of the market leader, HypCo. By 20X6, FM was the ninth largest shop and supermarket chain in the country, with revenues of $11bn, compared with HypCo's $45bn.

During this period, two new supermarket chains entered the Arborian market. These two new entrants, Super24/7 and Letto, already have a combined revenue of $50bn and are fourth and eighth respectively in the top ten Arborian supermarket chains. Both companies are overseas-based supermarkets operating a no-frills approach to retailing. Overall, the revenue of the top ten supermarket chains has increased from $300bn to $350bn in the last five years. Margins in the sector are always under pressure and the large supermarkets continue to aggressively market their goods, highlighting price savings. They also provide customer incentives, such as loyalty cards and account discount schemes in an attempt to retain customers. For many products and services, price comparison websites show consumers the prices charged by competing supermarkets.

With the exception of FM, all supermarkets are quoted companies with their shares largely owned by institutional investors who look for significant dividends and capital appreciation. FM is the only co-operative in the top ten Arborian supermarket chains. Generally, suppliers to supermarkets are relatively small companies. Supermarkets' control of consumer spending is so great that many suppliers aggressively compete to have their products stocked by the supermarket chains.

FM has continued to promote and follow its ethical principles. It ensures that new shops and supermarkets are energy efficient. It also continues to pay its employees significantly more than its competitors. This concern for its employees' welfare appears to lead to excellent customer service performance. For example, in a recent independent survey of supermarket customers, FM was ranked first for personal customer service. In dealing with suppliers, FM believes in paying fair prices and building long-lasting relationships in order to achieve business success and growth. FM and suppliers work in partnership to deliver high quality, innovative products to customers. There is some evidence that people in Arboria are becoming disillusioned with their supermarkets and this is reflected in a recent article titled 'Have Arborians fallen out of love with the supermarket?' which appeared in the influential daily newspaper, Arbor Today.



www.acco

untan

cywalls

.com

6

Exhibit 2: Article from the Arbor Today newspaper titled 'Have Arborians fallen out of love with the supermarket?'

For many years, the trend towards supermarket shopping has seemed unstoppable. The high streets of our towns have become increasingly deserted as grocers, butchers, toy shops and bookshops have disappeared under the combined onslaught of online retailers and expanding supermarkets. For example, ten years ago in the high street of Milton Magna there were three grocers, four butchers, two toy shops, one bookshop and only two supermarkets. Now, only one grocer and one butcher survive on the high street and both supermarkets have moved to out-of-town locations. In fact, there are now five out-of-town supermarkets serving the people of Milton Magna.

However, there is increased evidence that shoppers are becoming disillusioned with supermarkets and yearn to return to the days when shops were smaller and service more personal. Fiona McLean, of the Department of Sociology, MidShire University, says that, 'our research suggests that there is a significant number of consumers, commonly called green consumers, who are increasingly concerned about the environmental impact of food and other products that they are purchasing. This is not only in terms of the excessive and elaborate packaging of the goods, but also in terms of the 'food miles' that the product has travelled before it reaches the shelves of the shop or supermarket'.

In general, these green consumers have higher than average disposable income and they are prepared to pay a price premium for products that have been ethically sourced. Fiona also suggested that such consumers are part of a group who are increasingly angered by what they consider as the excessive profits of the large supermarket chains, the high remuneration packages paid to senior management and the large dividends paid to their institutional shareholders. 'There is a feeling that supermarkets are run by fat-cat managers, exploiting small suppliers to reduce costs to create a margin for dividends that pacify demanding institutional investors', she said.

Even the newer entrants, Super24/7 and Letto, are under threat. There is a consumer reaction against these overseas-based supermarkets that have followed a low-cost, no frills approach, with shelves stacked intensively with low priced products and where customer service is both impersonal and kept to a minimum. The low wages paid to staff in these supermarkets is also an issue for the green consumer.

So, perhaps Arboria is on the brink of a supermarket revolution! Television personalities such as Alexis Piazzio urge us to 'think local' and 'shop local'. Perhaps after all, small is beautiful when it comes to shopping!!!



www.acco

untan

cywalls

.com

7

Exhibit 3: Arborian government information sheet 4560 (extract) released by the Arborian government

Disability legislation (The Access Act)

The recent extension of disability access legislation requires shops and supermarkets to help all disabled customers to access all shelf areas within the store. The previous legislation just required shops and supermarkets to provide disability access to the store areas. However, many disabled customers found that goods were out of reach when they were actually in the store. This extension to the legislation addresses this issue. So, for example, all products held within the store must be reachable for a person who is in a wheelchair and, if not, a store attendant must help. Failure to adhere to this legislation will lead to a fine of up to $1,000 per incident.

Pension reform (Manifesto pledge)

As the new government of Arboria we recognise that current state funded schemes will lead to a significant pension shortfall in the future. Consequently, it is the intention of this government to make it mandatory for employees to pay 5% of their gross pay into a pension scheme of their choice. The amount paid in by employees will be matched by that paid in by their employer. So, for example, an employee earning $10,000 per year will pay $500 per year into his or her pension fund and the employer will also be required to pay $500 per year into the same fund. Under our proposals the employer will be responsible for ensuring that pension payments are correctly made into government authorised schemes and to accurately process these payments, through automatic payroll deductions, every month. At the current time our proposals for pension reform are under discussion.



www.acco

untan

cywalls

.com

8

Exhibit 4: FM's mission statement taken from the company's website

Farmer's Market Supermarkets

'Our mission as a consumer co-operative is to provide good value for money through our Arborian shopping facilities. Our trading practices are based on a combination of sound co-operative business ethics, the ethical sourcing of goods and the need to trade profitably. We will always seek ways to share our success with our members

and the local communities in which we trade.'



www.acco

untan

cywalls

.com

9

Exhibit 5: A memorandum from Gary Bourne, FM's Marketing Director proposing the introduction of a customer loyalty card and data analytics software

Memorandum

To: The senior management team at FM From: Gary Bourne, Marketing Director Subject: Customer loyalty card and data analytics

Many of you will no doubt be familiar with the fact that prior to my recent appointment as a director at FM that I used be the Senior Marketing Manager at HypCo. HypCo has for a number of years operated a data analytics system that allows it to proactively manage the relationships that it has with its customers through the use of its customer loyalty card, the Hyp-Card. The loyalty card forms part of an integrated data analytics and knowledge management information system that allows HypCo to track the shopping habits of those Hyp-Card registered customers.

The data analytics feature of the system allows HypCo to build a profile of each customer with a card. This profile can then be used for a variety of purposes including pricing, decisions as to which product ranges to stock, research, marketing and customer service. One of the key benefits is improved customer segmentation, which enables HypCo to promote low price or high-quality items as appropriate. The data captured is also sold to a number of HypCo's suppliers who use it to develop their own products.

Whist most other supermarkets operate similar customer loyalty schemes, none are as far reaching as HypCo's. HypCo's own research suggests that one in four Arborian adults belong to its customer loyalty scheme. A key advantage for HypCo is that the scheme enables it to extend its share of customer spend by identifying other products that the customer is likely to be interested in, based on their profile and spending patterns. Customers are then issued with money-off coupons to spend on certain items to tempt them back into store. Following preliminary discussions with other members of the senior management team it is my understanding that FM currently collects limited data about those customers who are also shareholders, with the value of dividends determined by the amounts that customers spend on purchases instore. Whilst this clearly has its benefits, I think that we are missing a trick as we are not currently able to collect data about those non-shareholder customers.

In the spirit of embracing change, I propose that FM introduces its own customer loyalty card based on the scheme in operation at HypCo. To facilitate this, we will need to make a significant investment in data analytics software and the associated IT infrastructure. However, before we proceed to a full launch of the customer loyalty scheme, I recommend that we look to roll this out in two regions on a trial basis.

I have conducted some preliminary research into the software offerings of a number of providers. So far, the cheapest data analytics software solution that I have found is priced at $200,000. The provider is a small, Arborian software company called Itrus. I suspect that the price quoted was slightly lower than would usually be charged as my brother-in-law is one of the owners of Itrus. For the sake of completeness, I did contact three other suitable suppliers but decided not to present the prices they quoted as they were all considerably more expensive. The contract price quoted by Itrus includes the basic software package, database storage, system installation and helpdesk support during the introduction of the customer loyalty card in the two regions. The capacity of the database can be increased at a later date if we decide to move to a nationwide roll out of the card. In anticipation that a number of you may have questions about my proposal and the software provider, I have attached extracts from Itrus' financial statements for the last two years for you to review before our next monthly meeting.



www.acco

untan

cywalls

.com

10

Exhibit 6: Extracts from Itrus's financial statements and annual report

Extract from the statement of financial position 20X6 20X5 Assets $'000 $'000 Non-current assets Property, plant and equipment 50 80 Goodwill 140 140 Total non-current assets 190 220 Current assets Inventories 1 3 Trade receivables 190 280 Cash 5 20 Total current assets 196 303 Total assets 386 523 Equity and liabilities Share capital 148 148 Retained earnings 50 40 Total equity 198 188 Non-current liabilities Long-term borrowings 110 75 Current liabilities Trade payables 68 253 Short-term borrowings 7 2 Current tax payables 3 5 Total current liabilities 78 260 Total liabilities 188 335 Total equity and liabilities 386 523



www.acco

untan

cywalls

.com

11

Extract from the statement of profit or loss 20X6 20X5 $'000 $'000 Revenue 754 800 Cost of sales (708) (749) Gross profit 46 51 Administrative expenses (25) (20) Operating profit 21 31 Finance costs (6) (4) Profit before tax 15 27 Tax expense (3) (5) Profit for the period 12 22 Extract from the annual report 20X6 20X5 Number of staff employed by Itrus 25 40



www.acco

untan

cywalls

.com

12

Exhibit 7: Email from Anya Khan, FM's Procurement Director outlining the procurement options available to FM

To: [email protected] From: [email protected] Subject: Risk awareness

I have been hearing good things from my fellow directors about the work that you have been doing over the past few weeks and would like to request your assistance. I am currently heading up a project to explore increasing the range of food products that we offer our customers at FM. During the first meeting with the project team, I made it clear that any new food ranges must fit with FM's existing pricing structure, quality standards and ethical approach to business. Following initial discussions with a number of food suppliers, the project team have identified four potential options for increasing FM's current food offering (see below). In light of the following, I would like you to assess the risks presented by each of the four options and to recommend an appropriate risk response to each of these. I look forward to hearing your thoughts.

Option 1

A large foreign supplier of fresh meat products has approached the project team. The supplier currently supplies a number of FM's competitors and is well known for selling meat at very low prices. Members of the project team have raised concerns that the quality of the meat offered by the supplier is of a lower grade than the meat currently supplied by FM's Arborian suppliers. I must be honest this option makes me rather nervous, as I have concerns regarding the supplier's track record on animal welfare.

Option 2

A new, Arborian-based fruit supplier has recently started selling a unique range of high-quality pears. One of FM's main rivals has already made contact with the supplier with a view to agreeing a contract to secure exclusivity of supply. The pear supplier has mentioned that they would prefer to supply FM due to its well-publicised ethical stance. The project team believe that a new line of unique pears would complement FM's existing pear and fruit offering. The only concern I have is whether a small supplier would be capable of maintaining supply to all of our stores.

Option 3

One of FM's existing cheese suppliers has proposed offering a new range of smoked and strong flavoured cheeses, similar to those that are sold in other parts of the world. If accepted, the supplier's proposal would significantly enhance FM's existing cheese offering. The project team is unsure how customers would react to a new range of cheeses.

Option 4

The project team have identified a supplier of high-quality fresh fish, located on a remote Arborian island. The supplier conforms to an international sustainable fishing initiative. The project team are keen to establish a supply arrangement with the supplier. I have raised concerns about the practicalities of physically getting the fish from the supplier's base to our stores before it perishes.

Kind regards

Anya



www.acco

untan

cywalls

.com

13



www.acco

untan

cywalls

.com

14



www.acco

untan

cywalls

.com

15



www.acco

untan

cywalls

.com

final mock – september 2020 · final mock – september 2020 questions time allowed 4 hours...

Documents