Appendix 5. Industrial and financial analysis.

Market potential to growth

Independent Production Sector Financial Census and Survey 2011 of UK (http://www.pact.co.uk/support/document-library/2011-census-summary/) shows the growth in TV revenue of independent production companies in UK:

The average growth of industry from 2004 to 2008 was about 8% annually. During the global recession the revenues of the companies declined by 7.2 percentage points, and in 2010 in comparison with 2009 the growth amounts to 8%. So we can make an assumption that market will continue to growth at least at 8% per annum. As for VYP, it’s revenue growth from 2010 to 2011 amounts to 38%, mostly thanks to producing drama series. So the company has great potential to growth in 2012 and the following years.

Financial Analysis

1.Profitability

As for net profit margin, the industry’s average margin in 2010 was 13%, while VYP had net profit margin – 7,2%, so it is not profitable enough in comparison with other companies, but this rate is reasonable enough, as company has a market share of 1,4%, which means it doesn’t have advantage on scale.

In 2011 net profit margin of VYP amounted to 7,3%, that means that 7,3 pence of every pound is profit. In 2011 in comparison with 2010 sales revenue of the company had growth amounted to 7,900 pounds, which means VYP took actions to increase sales revenue (launched drama series).

Though the company had a drop in operating profit margin from 12,1% in 2010 to 11,8% in 2011, it is quite successful, but has increasing overheads.

2. Risk position

Interest coverage ratio of the company amounts to 25,4 which This equation provides the company with an extremely high margin of safety.

Appendix 6. Profit and Margin for 3 variants of actor’s salary. Номер!!!)

	Variant 1	Variant 2	Variant 3
Revenue	17000	17000	17000
VC	Studio hire 5,000 Actors 2,800 Film crew 6,000 Scripting 1,200 Music 1,500	Studio hire 5,000 Actors 4,800 Film crew 6,000 Scripting 1,200 Music 1,500	Studio hire 5,000 Actors 4,000* Film crew 6,000 Scripting 1,200 Music 1,500
Operating Profit (First video)	0,500	(1,500)	(0,700)
Margin % (First video)	2.9	-8.8	-4.1
Operating Profit (Subsequent videos)	2,975	1,275	1,955
Margin % (Subsequent videos)	17.5	7.5	11.5

*⁾ 40%*£2,800+60%*£4,800=£4,000

Appendix 7.

Table 1. Estimation of Total Revenue from 'Sammy the Squirrel'
Number of programmes	20
Length of one episode, min	54
Variant 1
Fee per hour, £'000	350
Total revenue, £'000	6300
Total revenue, % of total sales revenue	22,02%
Variant 2
Fee per hour, £'000	227,5
Subtotal revenue, £'000	4095

Table 2. Estimation of Merchandising Revenue
Merchandising margin, %	25%
VYP's share of merchandising margin, %		40%
Merchandising sales, £'000	VYP's merchandising revenue, £'000	Total revenue, £'000
3000	300	4395
5000	500	4595
10000	1000	5095
17000	1700	5795
25000	2500	6595
Breakeven Point
22050	2205	6300

Figure 1. Breakeven Analysis

E ≡ Breakeven Point; Merchandising Sales Level = £22,050,000.

Table 3. Projected sales levels
Index	1997	2011	Growth Rate, %
Children under 5 in the UK (thousand of people)	2953.8	3063.1	103.7%
CPI (overall index), 2005=100	89.7	119.6	133.3%
Total Correction Rate			138.3%
Projected sales levels = Actual Sales Levels1997 * Correction Rate = £23 mln * 138.3% = £31.8 mln

Note: Actual Sales Levels₁₉₉₇ are those achieved by Teletubbies in the first year after their launch. According to BBC Worldwide Annual Report 1997/98, this figure was estimated at £23 million.

Sources: Office for National Statistics, National Records of Scotland, Northern Ireland Statistics and Research Agency; http://www.bbcworldwide.com/annualreviews/report1998/statment/statment.htm - BBC Worldwide Annual Report 1997/98.

1 http://www.guardian.co.uk/media/2008/jul/08/bbc.mediabusiness

2 http://www.mysalary.co.uk/average-salary/Merchandising_Manager_8355

3 Share of loss in operating profit