Case study – JB Newspapers
JB Newspapers is a significant Western Australian newspaper business. It has experienced strong growth for several years. Through its clever marketing and astute acquisitions it has projected growth of 10% pa revenues for each of the next 5 years. Last year the business had revenues of $120 Million. The paper publishes Monday to Friday and has an average circulation of 150,000 per publishing day. Its revenues consist of $1.50 per newspaper with the rest made of advertising. The company is very profitable and has good reserves of cash and lines of credit.
Physically, the business consists of offices for administration and reporting, and a very old printing facility, which while fully, paid is very expensive to operate compared to modern facilities. The main office is in the city. While it owns this property it believes it can realise $10 Million through its sale. As well, the business has 10 branches scattered throughout the city with total annual rental of $0.5Million.
A preliminary plan has been developed to improve efficiency and allow for continued growth. The elements of the plan are:
• The business will relocate all its current facilities to one, situated in an industrial centre on the edge of the city. The total land acquisition costs will be $2Million and $5Million for the office and administration facilities. The land will allow growth for at least 20 years projected and the planned facilities will allow growth for at least 5 years;
• The production facilities will utilise the most modern techniques and decrease “per newspaper” production costs from $0.30 to $0.15. The capital cost of $15 Million is estimated for this plant;
• As 150,000 newspapers must be distributed from this facility daily, a dispatch and distribution facility is required, along with appropriate infrastructure. The details of this are not well understood but $5Million has been set aside for this;
• A new IT system will be introduced. It is an off-the-shelf system widely used in the industry, and will integrate all journalist, production, advertising, distribution and administration functions of the business. IT hardware will be moved from the old premises (this was upgraded only last year and is thought to have the capacity required). However existing communications services will need to be transferred, new processes built (the new system works differently from the old one), and training and implementation arranged. The new IT system will cost $1.3 Million to purchase. In addition, consultants from the software vendor estimate their team can configure the systems and oversee the implementation requirements in 8 months – 4 months of configuration in their offices and 4 months of on-site support of the in-house project team. Their team will charge a fixed fee once the scope is finalised and this is estimated at $100,000 per month.
• The plan stipulates that there must be no disruption to sales, so this suggested the transfers be completed over a weekend.
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