Bux 2019 Advance Information

CASE STUDY
JULY 2016
ADVANCE INFORMATION
This material is issued prior to the examination session on 20 July 2016.
Candidates MUST bring this material with them to the Examination Hall.
Copyright © ICAEW 2016. All rights reserved. 222376

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BUX LIMITED: ADVANCE INFORMATION
This Advance Information is issued prior to the examination session so as to allow you to
familiarise yourself with the information provided and to undertake any other appropriate
research and analysis. The Advance Information is also published on the website:
www.icaew.com/students.
You MUST bring this Advance Information with you to the Examination Hall, annotated if
you wish, together with any other notes of your preparatory work. You must carry out sufficient
and appropriate analysis work of your own in order to have a detailed understanding of the
Advance Information. You should also undertake any additional research and analysis you feel
necessary to enhance your awareness of the industry and market context and to enable you to
clarify any technical terms or other issues of vocabulary. You will need to be able to refer back
quickly to the Advance Information and your notes during the exam; you are therefore unlikely to
benefit from taking large quantities of additional material with you into the Examination Hall.
At the start of the examination you will receive some additional material which will complete the
description of the case scenario and state the Case Study requirements. Your answer must be
submitted on the CBE software provided by ICAEW in the Examination Hall.
Assessment of the Case Study
The marks in the Case Study are awarded for professional skills, allocated broadly as follows:
 Assimilating and using information 22.5%

 Structuring problems and solutions 22.5%
 Applying judgement 22.5%
 Drawing conclusions and making recommendations 15.0%
 Demonstrating integrative and multidisciplinary skills 17.5%
Of the total marks available, 15% are awarded for the executive summary and approximately
10% for the relevant discussion of ethical issues within your answer to the requirements. Ethical
issues do not form a specific requirement but, within a requirement, may cover such topics as:
 Lack of professional independence or objectivity

 Conflicts of interest among stakeholders
 Doubtful accounting or commercial practice
 Inappropriate pressure to achieve a reported result.
You should be clear that marks are awarded for demonstrating your professional skills, not for
reproducing facts from the case. In order to be successful, you will need to:
 Demonstrate your knowledge of the case material and make use of your research;
 Carry out relevant analysis of the problems and structure your proposed solutions;
 Apply your judgement on the basis of the analysis that you have carried out; and
 Draw conclusions from your analysis and judgement, and develop them into practical
commercial recommendations.
Omitting any one of these elements will have a significantly detrimental effect on your
chances of success.
ICAEW/CS/J16 Page 1 of 43
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July 2016 Case Study: Bux Limited
List of exhibits
1 About you (Bobbie Harding) and your employer (Bux Limited)
2 The UK book publishing industry: An overview
3 Children’s book publishing in the UK
4 Bux: Company overview
5 Bux: Management accounts for the three years ended 31 May 2015
6 Bux: Review of the business for the two years ended 31 May 2015
7 Bux: Key accounting areas
8 Bux: Key business processes
9a Royalties and advances
9b Examples of advances paid by Bux
10 Bux: Strategy
11 Bux: Factsheets
12 Bux: Printing and distribution arrangements
13 Media coverage
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EXHIBIT 1
You (Bobbie Harding) and your employer (Bux Limited)

You are Bobbie Harding, a final-year trainee ICAEW Chartered Accountant working as an analyst at
Bux Ltd, a London-based publisher of children’s books. You are on secondment from Drummonds
ICAEW Chartered Accountants (a firm with which Bux otherwise has no connection) and you report to
Bux’s Finance Director, Zephaniah Bishoo.
In July 2015, the board of directors held a one-day strategic review meeting, which was led by an
external facilitator. One object of the day was to identify the strengths and weaknesses of the board,
both individually and collectively. A key weakness was identified as being in the area of ‘financial
literacy’ – with Zephaniah being a notable exception. As a consequence, you were engaged to work
with Zephaniah in order to help the other directors improve their understanding of the accounts and of
the many other financial figures that they encountered in running the company. Your work to date has
involved the following:
 Reviewing key areas of the management accounts and explaining significant movements and
anomalies to the directors
 Analysing the potential (especially financial) consequences of new business opportunities
 Keeping informed about market, economic and technical developments that impact Bux and
making relevant reference to them in your reports
 Identifying issues of ethics and business trust affecting Bux, its competitors and the children’s book
publishing industry in general, and justifying appropriate actions in response to these issues
 Offering clear and unambiguous advice to the directors based on your work.
In carrying out this work, you are always mindful of possible bias or vested interests, and you
understand the need to make judicious use of information and data provided by third parties and to
display objectivity when working with accounting figures that involve issues of professional judgement.
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EXHIBIT 2
The UK book publishing industry: An overview
What is publishing?
Publishing is a process that covers all activities in the production of a book: from writing, acceptance
and the awarding of a contract to an author, through to printing, marketing and distribution. The whole
process can take months if not years. These activities are undertaken by publishers, though some may
be outsourced to other companies. In general terms, the task of publishers is to attract good authors
and to publish books that achieve commercial success. They may commission books that fit their
profile, or consider book proposals from authors (or their agents) and make a decision as to whether
they should be accepted. Some publishers focus on broad categories, such as fiction or non-fiction;
others specialise within a category, eg, history within non-fiction or children’s books within fiction.
Publishing traditionally referred to the creation and distribution of printed books, newspapers and
magazines for public view. More recently, the development of the internet and electronic media,
together with the emergence of ‘e-readers’ such as Amazon’s Kindle, has considerably widened the
scope of publishing, affecting sales of printed publications and revolutionising the industry. The
proliferation of e-books has been mainly within fiction, but also within academic textbooks and non-
fiction reference works.
Development of the publishing industry
In 1455, the Gutenberg Bible became the first major book to be printed with mass-produced movable
type. It marked the start of the age of the printed book, and its publication continues to be regarded as a
seminal event in the history of mankind. Before then, books were either copied by hand or printed from
blocks – processes that could take months or years to complete. As a result, writings that had previously
been accessible only to a small number of people could now be made more freely available.
From then until the 18th century, there was little development in publishing, other than in the speed and
quality of production. Changes that did occur were relatively small. Then, in the 19th century, a series
of technical innovations (steam power, mechanical typesetting and new ways of reproducing
illustrations) drastically raised output and lowered costs, and a publishing industry began to develop. By
1825, around 600 new book titles were appearing annually in the UK, rising to about 6,000 by 1900.
In the early 20th century, as books became more widespread and printing became more highly
mechanised, many new publishing houses were founded. Some of these remain in existence today,
often still under their original names, and they are among the best-known names in global commerce.
They are now vying for prominence with much newer, web-based companies.
The publishing industry today
As in many other industries, the pace of change in publishing accelerated considerably in the late 20th
century with the arrival of new technologies. First, audio-books came on the market – a boon not only
for those with impaired vision but also for those who enjoy listening to a good story and for car and lorry
drivers seeking entertainment on long journeys. More recently, with enhancements to the software and
hardware for mobile phones and other small handheld devices, it became possible to buy – and read –
books in electronic formats. E-books had arrived.
UK book publishing – trends and influences
Largely as a result of the impact of e-books, traditional publishers have been in decline, with some
closing down. Others have adapted to the technological changes or sought opportunities for business
combinations and informal links in order to maintain position. Within the UK, there are currently just
over 2,000 book publishers – around 20% fewer than a decade ago. Many of these are based in and
around London.
Specialist bookshops have also suffered. Small bookshops are struggling against competition from e-
books and from heavy discounting by online retailers and UK supermarket chains. Larger bookshops
and bookshop chains have also reported falling sales and store closures.
According to recent statistics from the Publishers Association, total 2015 revenue from printed books
and e-books by UK publishers was £3.32 billion. While this overall figure is relatively constant from
2014, it reveals some changing patterns: printed books were up 0.4% to £2.76 billion (the first rise for
four years), while e-books fell by 1.6% to £0.56 billion (the first fall since e-book figures began to be
collected). Within physical books, when measured by quantity, paperbacks on average outsell
hardbacks by a ratio of 3 to 1, but this varies considerably both within and between categories.
Around 200,000 titles are published in the UK each year. Of these, paperbacks account for around
45%, followed by e-books (35%) and hardbacks (15%). The remaining 5% comprise other formats
(cloth, audio-books, CDs and cassettes). E-books overtook hardbacks in 2011 and their share of the
total rose steadily, reflecting the continual emergence of new devices with more innovative features.
However, as the 2015 revenue figures show, e-book growth is starting to slow.
The trends described above are attributed to several factors in addition to the influence of technology,
notably self-publishing (see below) and film adaptations of young adult fiction (see Exhibit 3).
The publishing industry and business model
Set out below are a number of key features of the industry.
Book formats
In broad terms, there are three formats in which books are published: hardback, paperback and e-book.
Books often appear at first in hardback form. Once the hardback has been available for a specified time,
a paperback version is issued, after which sales of the hardback tend to fall. In general, hardbacks are
sold at higher prices than paperbacks. This is because they are more expensive to produce and are sold
in smaller quantities than paperbacks, meaning less scope for scale economies. Hardbacks are more
durable than paperbacks – making them particularly suitable for children’s books – and are more
attractive to look at on bookshelves.
Astute publishers often produce the paperback version of a given author’s previous title to coincide with
the publication of his/her new hardback title or with the release of a film based on the previous title.
This enables them to maximise sales opportunities.
Most new titles are also now available as e-books. The timing of e-book releases relative to the
corresponding hardback and/or paperback varies between authors and between publishers. Many
established publishers are going through a process of converting their back catalogue (including older
books that were first published before the e-book era) into e-books.
E-books are produced in a variety of ways, usually by either converting from a printed copy or taking
straight from an electronic file in ‘pdf’ or other accessible format. They also have to be compatible with a
variety of devices and there may therefore be a number of different versions of a particular e-book. Even
with such variations, the average unit cost of producing an e-book, once the initial formatting has been
done, is much lower than that of a printed book. Consequently, profit margins tend to be higher.
Printing and distribution
Historically, the vital process of printing was carried out by publishers themselves. Printing is now
increasingly conducted externally by specialist printing companies.
An important challenge for publishers and printers is in determining the demand for a book as they do not
want to be left with inventory that has to be ‘pulped’ (destroyed) through lack of interest. For a major novel by
a well-known writer, a large number of copies will be printed at the outset, with the confidence that they will
all be sold and that it may be necessary to reprint the book if demand is high. The print-run in such a case
will benefit from economies of scale. At the other extreme, for a new self-published author, printers
commonly ‘print on demand’ – a process whereby copies are not printed until an order has been received,
allowing books to be printed singly, or in small quantities – inevitably a more expensive process per unit.
Distribution is critical in ensuring that books reach their destination, whether bookshops or individual
customers (including online). Some publishers operate their own distribution centres; others outsource
distribution, storage and warehousing to specialist companies. Some printing companies offer a full
range of services that includes distribution. In all cases, it is the publisher who decides where and how
the book is to be sold: the printer and/or distributor serve simply as the means of delivery between
publisher, sales channel and customer.
Finished goods inventory included within publishers’ financial statements represents completed printed
books ready for distribution, whether held by the publisher or by an external printer/distributor. Work-in-
progress represents projects that have been commissioned and/or started but which have not yet been
printed or completed.
UK book publishers and printers have been pioneers in introducing environmentally friendly methods,
for instance in sourcing and using sustainable paper resources and reducing the use of harmful
chemicals.
Sales channels – printed books
Books are sold in a wide variety of places. As well as bookshops, mail order and the internet, these
include other shops (eg, supermarkets, airport outlets) and television shopping channels. Within the
broad category of bookshops there is a large range – from large chains to individual discount shops.
Some publishers have found creative ways to reach their audience. One example is ‘books in a box’,
whereby books are delivered in bulk to offices and other business premises, so that staff can browse
and purchase during their lunchtime. Another model is offered by Usborne, one of the UK’s largest
children’s book publishers: through its ‘Usborne at Home’ division, it sells large numbers of books to
individuals, schools and libraries at parties and events hosted by so-called Independent Organisers.
Sales channels – e-books
Most e-books are sold by downloading onto the individual customer’s e-reader or other device from
platforms such as Amazon; bookshops and supermarkets or their websites; or directly from the
publisher’s own website. Payment is usually made by debit or credit card, or through a secure electronic
payment system. The websites involved often carry software that identifies buying patterns among
customers, enabling them to tempt buyers with messages such as ‘People who bought book X also
bought books Y and Z’. They also remind returning visitors to the website about books and other
products that they have previously browsed.
Returns
Printed books are usually sold to retailers on a ‘sale or return’ basis. This means that the retailers can
return to the publisher any copies that have not been sold to their own customers within a specified
period (say, three months).
Rights, royalties and advances
When publishers acquire the ‘rights’ to a book, the author is granting the opportunity to publish and sell
it by means of a legal agreement (contract). Sometimes, the author will grant all possible rights to a
single company (eg, rights to sell in all territories, rights to adapt into a film, rights to translate into other
languages); in other cases, these rights will be granted separately to a range of publishers and other
media companies. Publishers pay authors through an established system of ‘royalties’ and ‘advances’
(see Exhibit 9a).
International sales
UK publishers face the important choice as to whether or not to sell their books internationally. There are
a number of considerations: translation (see Exhibit 11); whether to sell to bookshops and/or to
individuals; how to deal with rights and licensing issues, as well as other legal and regulatory factors
(which vary from country to country); and costs of distribution.
Self-publishing
Publishing used to be a job for highly-trained individuals at publishing companies. Today, the capability,
usability and affordability of technology mean that people can easily, quickly – and cheaply – publish
their own content. This is known as ‘self-publishing’ and has become common among aspiring authors
looking to share their work (often online) and to reach a wide readership and/or get the attention of an
agent or publisher. The growth of self-publishing is a threat to traditional print publishers, especially to
those that are unable to adapt to the new technology.
Ghost-writing
A ghost-writer is someone who writes books, screenplays, scripts, speeches, articles, stories or other
texts that are officially credited to another person who tends to be better known but who lacks time
and/or literary ability to write the book on his or her own. Celebrities and political leaders often hire
ghost-writers to draft or edit autobiographies or other written material.
Bestseller lists
An important marketing tool for all book publishers is the bestseller list (or ‘chart’), whereby books are
ranked according to sales made in a specified period. This in turn is seen as giving them greater
credibility and more appeal to readers. The availability of books through online sites has made the
compiling of bestseller lists much more transparent (those of online retailers can be updated in real
time as each sale is made).
Book reviews
Book reviews are another crucial piece of marketing. With the expansion of the internet, it is now
possible for anyone to be a book reviewer – a system that is open to exploitation. For example, an
author may ask friends to post favourable reviews of his/her new book, or even write the reviews
himself/herself and upload them under pseudonyms. Alternatively, the author may arrange for
unfavourable reviews of works by other writers whose reputation he/she may wish to damage.
Reviews (and recommendations) are a key factor in the sales and popularity of children’s books.
Among other places, they can be found on websites that have been specifically created using the
experience of parents who want their children to read quality books. Thus, as well as being a medium
for reading, technology (in the form of the internet) allows children and their parents to find out much
more about a particular author or book than was previously the case. With so many books now to
choose from, this is increasingly important.
EXHIBIT 3
Children’s book publishing in the UK
The origins of children’s books in the UK
Before the mid-18th century, the only books that existed for children in the UK were fables, fairy stories,
long chivalric romances and short pamphlet tales. However, these were all produced for children and
adults alike; books specifically for children were largely instructional (eg, spelling guides) or moralising.
Then, in the 1740s, a group of London publishers began to produce books aimed at educating and
delighting young readers. These included John Newbery, a successful writer for adults, whose first book
for children was ‘A Little Pretty Pocket-Book Intended for the Instruction and Amusement of Little Master
Tommy and Pretty Miss Polly’. Bound in bright paper, it was sold with a ball (for boys) and a pincushion
(for girls) – toys to be used to record the owner’s good and bad deeds (by means of pins stuck to the
black or the red side of the ball or pincushion). Newbery became known as the ‘father of children's
literature’ by showing that publishing children’s books could be a commercial success.
By the early 1800s, the children’s book business as we know it today had arrived. Its rapid rise has been
attributed to the entrepreneurship of Newbery and others; socioeconomic factors; technical
developments; new educational theories; and changing attitudes to childhood. Authors could now make
a living out of writing just for children – and become famous for it. Children’s literature was a flourishing,
separate part of the UK publishing industry, with around 50 children’s books being printed each year.
Although some were still moralising in style, they were designed to please their readers, whether with
entertaining stories and characters, the pleasant tone of the writing or attractive pictures and layouts.
The move towards greater visual (as well as aural) appeal has continued. Changes in the 20th century
included improvements to colour and variations to basic layouts, such as ‘flaps’ to pull, lamination,
‘touch and feel’ pictures and buttons that make sounds. These techniques all added to the reader
experience but also to the cost of production and hence the book’s price.
Children’s books today
Children’s books today cover a wide range of subject matter and types (‘genres’). The most natural
division is between fiction and non-fiction, but within each of these two groups there are numerous
categories that can be identified, such as (within fiction) science fiction, fantasy and adventure. Another
obvious split is by age, but this is not always clear-cut: books will often be described as being suitable for
a range of ages (eg, 4–6). Some books are written specifically for boys or for girls; others may find
themselves appealing more to boys or girls without necessarily having been written with that intention.
Some books defy easy classification: in particular, the distinction between children’s and adults’ books is
often blurred. This area of overlap (ages 12–18) is frequently referred to as ‘young adult’.
Some children’s publishers are active in both fiction and non-fiction, others in just one or the other. For
example, there are publishers engaged solely in producing textbooks for schools.
Market trends
Children’s books have become one of the most prosperous parts of the UK publishing industry. Sales
across all formats – hardback, paperback and e-book – are at around their highest figures since 2007,
when the seventh novel in JK Rowling’s internationally successful Harry Potter series appeared.
Although e-books hold a sizable share of the market, many children still prefer a printed book that
they can hold while enjoying high-quality illustrations; parents also prefer it because it prevents
children from spending too much time on electronic gadgets.
With more young adult fiction books being adapted into films (eg, Harry Potter, The Hunger Games,
Twilight), young adult fiction has become one of the fastest-growing genres. More young adults have
read the novels on which their favourite film or television series is based, boosting overall reading rates.
As this phenomenon is expected to continue, publishers are seeking new writers of such books to take
advantage of the sales opportunities arising.
Strategic challenges
Sales of children’s books and their popularity continue to be affected by wider socioeconomic factors
and strategic challenges. These include the following.
Birth rates
In some years, there can be sharp increases in the numbers of children born (‘baby booms’). Book
publishers will be aware of these variations and plan accordingly for a growth in demand for books
suitable for a particular age when the children in question reach that age.
Competition for leisure time
Books must now vie with many other leisure products competing for children’s time. This will
especially be the case if their parents have limited disposable income. Much may depend on whether
the parents view books as a luxury or a necessity, which in turn will depend on how they view their
children’s education and development, as well as on their own reading experiences when growing up.
Marketing initiatives
There are a number of national and international programmes and events (such as the annual World
Book Day – for the UK, this is usually held in March) that are designed to ensure that reading is viewed
among children as a socially desirable activity.
Government initiatives
The UK government is constantly seeking ways to ensure that children begin learning to read and
write at a young age and that they then leave school able to read and write competently. One way in
which it does this is to make changes to the ‘National Curriculum’ (the syllabus followed by the
majority of schools in the UK) – but at the same time it is often forced by budgetary constraints to
reduce funding to schools, and this in turn reduces the availability of books in classrooms.
Longevity
While many children – and publishers – are eager for the next title from an existing writer, there are
still writers whose works have proved enduring many years after they were first published and are still
read by every new generation.
Focus on age-groups
A key challenge for children’s book publishers – as for all companies offering products and services to
children – is how to retain them as customers while they move through the age-groups.
EXHIBIT 4
Bux: Company overview
Bux earns its revenue from the sale of children’s books. It sells printed books to bookshops in the UK
and e-books to individual customers both within and outside the UK. All sales are in £ sterling.
Formation and development
Bux had its origins in 2004, when Annette Lewis invited Yolande Holder to a charity concert. Annette
was then a book reviewer for a leading national newspaper but she was keen to establish a new
career for herself as a publisher. She had recently enjoyed a large lottery win and decided to use her
new wealth to pursue her professional goal. Yolande was a friend of hers from their schooldays and
an up-and-coming children’s author (and talented illustrator). During the interval at the concert,
Annette asked Yolande if she would be interested in producing a series of stories for young children
to create the image that Annette was seeking for her new venture. Yolande accepted the challenge.
Several months later, Annette incorporated her business under the name ‘Bux’. The first series of
‘Abby’ books (as they were to be called) were published soon after, quickly establishing themselves
as essential purchases for bedtime reading and establishing Yolande as a major writer.
Realising the need for a strong marketing message, Annette devised the strapline ‘Children  Books’.
She was also acutely conscious that she could not prosper as a one-person enterprise, and so she began
recruiting experienced people from the world of books and further afield – mainly, like Annette herself,
professionals in search of a new career direction. In due course, Bux had a board of directors, supported
by a strong team of editors and other staff, all based at an office in central London – the heart of the UK
publishing industry.
In 2010, Annette received the manuscript for a fantasy book called ‘Was’ by an unknown writer, GF
Randall. ‘Was’ had been rejected by several major London publishers. Annette read it and rapidly
concluded that it would have huge appeal to children aged 8–11, an age-group that was at that time
poorly served. Her instinct was right: ‘Was’ became a bestseller within a few weeks, as did its sequels
‘Would’ and ‘Must’ when they were published in the following two years. The title ‘Must’ emerged as
the winner in a national competition among readers and fans to name the third book in the series
(giving both Bux and GF Randall excellent publicity at little cost). Bux paid significant advances to GF
Randall for all three books; these have now fully ‘earned out’ (see Exhibit 9b). The approach from GF
Randall came through a literary agent, Liza Halstead. Most of the new authors that Bux has accepted
since then have also come through agents (see Exhibit 11).
Bux today
Bux has continued to sign new authors. It is now one of the UK’s leading children’s book publishers,
home to top-quality fiction and non-fiction by award-winning authors and illustrators, both established
and new, and to ‘household name’ characters. Bux has almost every type of children’s fiction book for
every age from 0 to 18, including baby books, sticker books for toddlers, through to young adult novels.
Its non-fiction covers a wide range of areas. Bux has also continued to adapt with the times and to
invest in technology, more recently by recruiting experts in e-book production. Bux outsources printing
and distribution, mainly to two companies, Ethelred and Renoir (see Exhibit 12).
In the books that it publishes, Bux endeavours to ensure that its authors promote healthy lifestyles
among children – for example, by encouraging them to take regular exercise and by helping them to be
comfortable with their size, shape and overall body image. Bux also seeks to enhance the self-esteem
of children with disabilities by providing them with positive role models through publishing stories about
heroes and heroines who are disabled.
Leading authors
Some authors have been with Bux since its earliest days, following their initial acceptance and signing
of a contract; others have joined more recently. Bux aims to be conscientious, responsive, efficient and
fair in its dealings with all authors, illustrators and other artistic contributors, regardless of the length of
their relationship.
 Yolande Holder has been Bux’s best-selling author. She produces stories for children up to age 4,
all of which she illustrates herself. Bux has so far published over 50 Yolande Holder titles, including
the ‘Abby’ series, in a variety of formats.
 For children aged 5–7 (that is, those who are acquiring and developing the skill of reading for
themselves), there are several writers that dominate Bux sales, notably Erica Fuller, Thomas
Patterson and Roni Johnson. Their books are characterised by beautiful artwork, in some cases
provided by Bux’s best-known illustrator Georgina Tullis.
 For children 8–11, GF Randall continues to be a key author. All three of his books are regularly
reprinted, most often sold as a trilogy in a stylish case, accompanied by a wallchart.
 For those above the age of 11, Bernard Underne has written a series of very popular adventure
stories set in an imaginary continent called Jax. Although these were originally aimed at teenage
boys, it is estimated that around 30% of the Jax books are currently bought by or for teenage girls.
 Across all ages, Wilfred Weasel (often abbreviated to ‘Wilf’) is Bux’s best-known character and one
of the most successful in modern children’s publishing. Created by Honore Lightstone in 2011,
Wilf became an instant ‘hit’, endearing himself to parents and children alike with his rascally antics
in the company of other creatures such as Otto Otter and Reginald Raccoon. Millions of Wilf books
have been sold around the world, in over 20 languages (the non-UK rights belong to other
publishers). Wilf’s birthday (5 June) is marked as Wilf Day, with promotional events at schools
across the UK. The inaugural ‘Bux2U’ interactive webcast, featuring a 3-metre Wilf towering over
Honore Lightstone, was seen by over 100,000 viewers; other webcasts are now being planned.
Key personnel
The current Bux board comprises the following six directors:
 Annette Lewis: Managing Director. Annette has been integral to the growth of Bux, creating and
maintaining both her own profile and that of the company within the industry. She is primarily
responsible for the identification and selection of appropriate new authors and books.
 Hilda Urman: People Director. As well as her role with Bux’s own employees, Hilda is responsible
for relationships with authors, illustrators and other creative parties (liaising as necessary with
agents), including negotiation of contracts.
 Zephaniah Bishoo: Finance Director. A qualified ICAEW Chartered Accountant, Zephaniah was
previously Finance Director at a major non-fiction children's publisher.
 Ronald McSwane: Sales, Marketing and Research Director. Ronald’s duties include seeking
new ways to encourage children to read, through initiatives such as Bux2U (see above).
 Olive Gloster: Production and Distribution Director. Olive has recently been instrumental in
setting new UK industry standards for the production of children’s books, covering safety and
ethical trading. At Bux, she is responsible for relationships with external printer/distributors.
 Rupesh Shah: Technology and Innovation Director. Rupesh joined Bux in 2013 and oversees
the use of technology across the business, not only in developing e-books but also in other
business and administrative activities (eg, tracking book returns) and in supporting finance.
The directors are supported by staff across a range of functions. These include a team of senior editors,
whose role is vital in maintaining the quality of output for which Bux has become renowned. As well as
identifying and nurturing new talent alongside Annette Lewis, their work involves day-to-day duties such as
acquisition, agreeing contracts, and checking and approving books. The senior editors are also responsible for
Bux’s market-leading Mini-Reader scheme (see Exhibit 8).
EXHIBIT 5
Bux: Management accounts for the three years ended 31 May 2015
Statement of profit or loss
for the years ended 31 May 2015 2014 2013
£000 £000 £000
Revenue (Note 1) 50,106 43,798 39,392

Cost of sales (Note 2) (27,760) (23,873) (20,997)
Gross profit 22,346 19,925 18,395
Marketing and distribution costs (4,384) (3,956) (3,593)
Administrative expenses (Note 3) (12,839) (11,665) (11,040)
Operating profit 5,123 4,304 3,762
Net finance income/(expense) 41 20 (7)
Profit before taxation 5,164 4,324 3,755
Income tax expense (1,033) (865) (751)
Profit for the year 4,131 3,459 3,004
Statement of financial position

as at 31 May 2015 2014 2013
£000 £000 £000
Assets
Non-current assets: Property, plant and equipment (Note 4) 2,874 3,186 3,047
Current assets
Inventories (Note 5) 9,235 7,703 7,584
Trade and other receivables (Note 6) 12,904 11,547 10,777
Cash at bank and in hand 3,755 2,361 247
Total current assets 25,894 21,611 18,608
Total assets 28,768 24,797 21,655
Shareholders’ equity
Called up share capital 100 100 100
Retained earnings 20,627 17,746 15,287
20,727 17,846 15,387
Current liabilities
Trade and other payables (Note 7) 7,008 6,086 5,517
Current tax liabilities 1,033 865 751
8,041 6,951 6,268
Total equity and liabilities 28,768 24,797 21,655
Statement of cash flows
for the years ended 31 May 2015 2014 2013
£000 £000 £000
Profit before taxation 5,164 4,324 3,755

Adjust for:
Depreciation 677 609 566
Loss on sale of property, plant and equipment 8 39 5
Net finance (income)/expense (41) (20) 7
Operating cash flow before changes in working capital 5,808 4,952 4,333
Change in inventories (1,532) (119) (314)
Change in trade and other receivables (1,357) (770) (1,931)
Change in trade and other payables 922 569 939
Cash generated from underlying operations 3,841 4,632 3,027
Income tax paid (865) (751) (710)
Net cash from operating activities 2,976 3,881 2,317
Cash flows from investing activities
Net interest received/(paid) 41 20 (7)
Proceeds on disposal of property, plant and equipment 5 - -
Purchase of property, plant and equipment (378) (787) (553)
Net cash used in investing activities (332) (767) (560)
Cash flows from financing activities
Equity dividends paid (1,250) (1,000) (750)
Net cash used in financing activities (1,250) (1,000) (750)
Change in cash and cash equivalents 1,394 2,114 1,007

Cash and cash equivalents at beginning of the year 2,361 247 (760)
Cash and cash equivalents at the end of the year 3,755 2,361 247
Notes to the management accounts
Note 1: Revenue
2015 2014 2013

£000 £000 £000
Printed books 45,391 41,862 39,230

Less: Returns (5,487) (5,530) (5,206)
39,904 36,332 34,024
E-books 10,202 7,466 5,368
50,106 43,798 39,392
Note 2: Cost of sales
2015 2014 2013

£000 £000 £000
Pre-production and printing costs 18,520 16,631 15,049

E-book delivery, conversion and related costs 3,138 2,104 1,467
Royalties 5,646 4,720 4,014
Impairment of advances 456 418 467
27,760 23,873 20,997
Note 3: Administrative expenses
2015 2014 2013

£000 £000 £000
Salaries, training and other personnel costs 10,355 9,458 8,872

Rent, rates, insurance, IT and other office expenses 1,444 1,271 1,299
Depreciation and other general expenses 1,040 936 869
12,839 11,665 11,040
Note 4: Property, plant and equipment
Short Fixtures, TOTAL

leasehold fittings and
improvements equipment
£000 £000 £000
Cost
At 1 June 2013 2,702 2,198 4,900
Additions 76 711 787
Disposals (14) (181) (195)
At 1 June 2014 2,764 2,728 5,492
Additions 48 330 378
Disposals - (85) (85)
At 31 May 2015 2,812 2,973 5,785
Depreciation
At 1 June 2013 403 1,450 1,853
Charge for the year 278 331 609
Disposals (14) (142) (156)
At 1 June 2014 667 1,639 2,306
Charge for the year 296 381 677
Disposals - (72) (72)
At 31 May 2015 963 1,948 2,911
Carrying amount
At 31 May 2013 2,299 748 3,047
At 31 May 2014 2,097 1,089 3,186
At 31 May 2015 1,849 1,025 2,874
Depreciation is provided at rates calculated to write off the cost of assets less their estimated residual values
on a straight-line basis over their estimated useful lives, at the following rates:
 Short leasehold improvements: remaining life of lease

 Furniture, fittings and equipment: 10 – 20% per annum
Note 5: Inventories
2015 2014 2013

£000 £000 £000
Work-in-progress 1,946 1,438 1,391

Finished goods 7,289 6,265 6,193
9,235 7,703 7,584
Finished goods inventory primarily comprises completed printed books held at Bux or at third-party printers
ready for distribution. Work-in-progress represents projects that have been commissioned and/or started but
which have not yet been printed or completed.
Note 6: Trade and other receivables
2015 2014 2013
£000 £000 £000
Trade receivables 10,881 9,424 8,639

Less: provision for returns (1,469) (1,377) (1,251)
9,412 8,047 7,388
Prepayments – advances 2,644 2,768 2,881
Other receivables and prepayments 848 732 508
12,904 11,547 10,777
Note 7: Trade and other payables 2015 2014 2013

£000 £000 £000
Trade payables 3,049 2,868 2,769

Royalties payable 1,809 1,512 1,247
Other payables and accruals 2,150 1,706 1,501
7,008 6,086 5,517
BLANK PAGE
EXHIBIT 6
Bux: Review of the business for the two years ended 31 May 2015
(briefing note for Bobbie Harding, prepared by Zephaniah Bishoo, July 2015)
These notes set out the key features of our business performance for each of the last two years. They highlight
figures that we monitor closely, as well as other points not readily identifiable from the management accounts.
General
 Our results – and those of our competitors – are affected significantly by the judgements involved in
determining the levels of allowances, provisions and impairments for three key captions: returns,
advances and inventory (see Exhibit 7).
 Pre-production and printing costs are included within cost of sales. They comprise:
o costs that are incurred regardless of the size of the print run, eg, acceptance, editorial work, design
and artwork (tasks collectively referred to as ‘pre-production’); these costs include salaries and
other costs of staff involved in the pre-production process
o costs that vary with the size of the print run, notably printing and binding
o inventory impairment costs.
Around two-thirds of total pre-production and printing costs are amounts paid to external printing
companies (chiefly Ethelred and Renoir); the remainder are internal costs.
 E-book delivery, conversion and related costs comprise:
o specific expenditure on preparing e-books for publication, including costs necessary to adapt them
for different devices and platforms
o amounts paid under revenue-sharing agreements to platform-holders (eg, Amazon) for books
published by Bux that they sell online; these costs vary with the volume of e-books sold
o costs of converting back catalogue print titles to e-book format
o salaries and other costs of staff engaged in these activities.
 Cost of sales also includes royalties. These relate to both printed books and e-books.
 The smallest item within cost of sales is impairment of advances paid to authors and no longer considered
likely to ‘earn out’ (see Exhibit 9a). These are deemed to be costs of printed books for the purposes of
calculating gross profit for each of the two revenue streams.
 Marketing and distribution costs comprise:
o marketing costs, which can fluctuate from year to year, depending on individual campaigns, for
example in relation to high-profile new book launches. These include both in-house work and
campaigns undertaken on Bux’s behalf by specialist agencies.
o distribution costs, which vary with sales volumes rather than with revenue. These are mainly
amounts paid to external printing/distribution companies for their distribution services. Around
two-thirds of total marketing and distribution costs each year are paid to these companies.
 Salaries and related costs of administrative staff are included within administrative expenses.
 Bux typically incurs capital expenditure of around £0.5 million each year in seeking to ensure that it keeps
all property, plant and equipment up to date. However, the figure in any one year can be more or less than
this, depending on need.
 In common with those of many other publishers, our accounts show significant amounts of inventories and
receivables.
 A dividend is paid each year.
Year ended 31 May 2014
 Revenue grew strongly, with increases in both printed books and e-books.
 Printed book revenue was boosted by rises of 15% in revenue from Abby titles and 10% from the Jax series.
 We were pleased to maintain the ratio of paperback to hardback sales volumes at 3:1, in line with current
industry experience.
 We increased the returns provision towards the end of the year. This was to cover a number of titles that we
identified as unlikely to achieve the sales by bookshops that we had originally anticipated.
 E-book revenue continued to increase its share of the total. This is still a relatively new area of business for
Bux, so we are not yet experiencing the slower growth identified by some other publishers.
 27 new authors signed contracts with Bux in the year, equating to 13% of authors who approached us,
whether directly or via agents. Revenue includes £1.69 million from these 27 authors.
 Total royalties paid comprise: on printed books: £3.040 million; on e-books: £1.680 million.
 We engaged a number of new editorial and sales staff to support the ongoing investment in e-books.
 Overall gross margin fell as a result of a rise in underlying printing costs, as well as higher inventory
allowances, primarily against some of our older titles that have now almost completely ceased selling. In
certain cases, we have transferred unsold books to discount bookshops, reducing the need for pulping.
 Gross margin by revenue stream was 44.7% for printed books and 49.3% for e-books.
 We bought new computer equipment for our staff. We also invested (near the end of the year) in new
software and hardware to enable us to track returns in real time, linked to the accounting system.
 The strong operating performance resulted in an overall increase of over £2 million in cash balances.
Year ended 31 May 2015
 Revenue reached the notable milestone of £50 million, with increases in both printed books and e-books.
 Total sales of printed books by volume rose by 7.3% to 5.12 million. This meant that average revenue (net of
returns) per printed book was up from £7.61 to £7.79.
 Growth was partly due to the Jax titles, and to GF Randall’s trilogy, re-jacketed to coincide with the release
of the second film, ‘Would’. Hardbacks’ share of overall sales volumes rose slightly as a result, from 25% to
26%, but this change in mix is likely to be temporary as the paperback versions will appear in 2016.
 Returns, expressed both in absolute terms and as a percentage of printed book revenue before returns,
declined. This follows the successful rollout of the new computer systems at the end of the previous year.
 There was a marked decline in sales of Abby titles, as Yolande Holder was unavailable for promotional work
because of illness. For the first time, she did not release any new titles in the year, though we paid an advance
of £0.11 million for new books. We have not provided for any returns of Abby titles as we consider that sales
will pick up again in the year ending 31 May 2016. We have also not recognised any impairment of the
advance to Yolande as we are confident that the promised new books will appear.
 E-book revenue continued to grow strongly, against the industry trend of slowing e-books sales. It has almost
doubled since 2013, though as a share of total revenue, at 20.4%, it is still below where we would like it to be.
We expect revenue growth to continue in the years ending 31 May 2016 and 2017 but at a slower pace.
 At the end of the year, the number of e-book titles was up 11% to 464. This partly reflected the start of a
project to convert our print back catalogue to e-books. Back catalogue contributed 14% of e-book revenue.
 31 new authors signed contracts with Bux in the year (16% of authors who approached us). Revenue includes
£1.88 million from these 31 authors. It also includes £2.41 million from the 27 new authors who signed
contracts in the previous year.
 Gross margin suffered a further decline. This was again partly due to inventory adjustments, not only in
respect of older titles (a number of which have now been withdrawn as they sell only very small numbers of
copies each year) but also for several of Yolande Holder’s books. Cost of sales also include an impairment
charge against the advance paid to Ruth Lang (see Exhibit 9b).
 Higher e-book costs reflect the costs of the back catalogue conversion project.
 Operating margin rose as we were able to negotiate more favourable distribution terms with Renoir.
 Royalties have risen as a percentage of revenue. This reflects the growth in revenue from e-books, which
typically command higher royalty rates than printed books. Total royalties paid comprise: on printed books:
£3.350 million; on e-books £2.296 million.
 As a result of net revenue reaching £50 million, the directors awarded a bonus (being 5% of gross salary) to
all employees who had been on the payroll for the whole of year ended 31 May 2015.
 Capital expenditure relates to enhancements, principally in relation to our marketing systems.
 Cash flow from operations was positive but significantly less than operating profit, largely because of
movements in working capital balances.
BLANK PAGE
EXHIBIT 7
Bux: Key accounting areas
A number of areas in the management accounts rely on judgement in relation to matters of inherent
uncertainty. These areas, and their accounting treatments, are described in turn below.
Book returns
Bux sells its printed books to bookshops on a ‘sale or return’ basis. Revenue is initially recognised when the
books are despatched. Bookshops are entitled to return books that they cannot sell to their own customers
(unsold books). As the timing of returns of unsold books is uncertain, Bux makes a provision for expected
returns that have not occurred by the year end. This provision is offset against trade receivables. It is calculated
by reference to historical returns rates and expected future returns (and comparisons of past estimates with
actual outcomes). These figures are in turn based on assumptions about the time-lag between sale and return,
which on average – based on past experience – is approximately three months. The charge for the year is offset
against revenue.
Advances and royalties
Advances are paid to existing authors for new books and to brand-new authors for their first books. They are
initially included as prepayments within trade and other receivables, and then expensed to cost of sales at
the contracted or effective royalty rate as the related royalties are earned, until such a time as they are fully
recovered (‘earned out’).
At each year end, Bux carries out a review on all advances. In determining whether they are individually
recoverable, Bux must make judgements about the likely future sales of the related titles. If Bux considers it
unlikely that royalties on expected future sales will fully earn out the advance, an expense is included in cost of
sales for impairment, being the difference between carrying amount of the advance and the expected amount
recoverable.
The figure for advances at the end of the year therefore represents cumulative advances (or parts of advances)
that have been paid but not yet recovered, after adjustment for any impairment allowances in respect of
advances (or parts of advances) that are not expected to be recovered.
Inventories
Inventories are valued at the lower of cost and net realisable value (NRV). Cost represents the amounts
incurred by Bux in relation to origination, paper, printing and binding. NRV is Bux’s estimated selling price less
all estimated costs of completion and costs necessary to make the sale. The estimated selling price for each
title is a judgement based mainly on its recent selling patterns.
At each year end, in order to determine the volumes of inventory held and hence to be able to value them,
Bux performs a reconciliation between the figures held on its own systems and those reported by its external
printers and distributors. Bux then carries out a review on all published titles for which inventory is held. Bux
makes an allowance against slow-moving and obsolete inventory on a title-by-title basis, by reference to
historical net sales and expected future net sales (and comparisons of past estimates with actual outcomes), in
order to value it at the lower of cost and NRV.
BLANK PAGE
EXHIBIT 8
Bux: Key business processes
Commissioning and acceptance
The senior editors prepare a shortlist of books from their reading of manuscripts – usually brought to
their attention by a literary agent – and make a case for accepting them at the regular Monday morning
‘new books meeting’. This is attended by all other departments that might be directly involved in the
publishing process. The final acceptance decision is based on a mixture of taste and commercial sense
(estimated sales figures, likely production costs and author’s track record).
Like many publishers, Bux has a mixed acceptance record. It is proud of many of its contracted authors
but there are also authors to whom it has paid large advances that have not ‘earned out’, as well as
some new manuscripts or authors that Bux’s editors have rejected but which have gone on to become
major international successes. In such cases, either Bux was not prepared to pay the advance being
requested or it did not see sufficient public interest or artistic merit in the proposed books or authors.
Production
Bux signs a contract with the author for a new book. The contract typically grants to Bux the exclusive
right to publish and sell the book within the UK. It states the book’s specification, eg ‘a work of 100
pages for children to be written and illustrated by the author, with 10 colour pictures’ and the formats in
which it is to be made available. Bux undertakes to publish it within a specified period, eg ‘within 12
months from delivery of the complete manuscript and artwork’. The book may be at a concept stage at
this point (in which case it may not be ready for publication until many months later) or it be may be well
developed and close to being fit for publication.
Design and printing
Working closely with its outsourced printers, Bux prides itself on producing books that are attractive to
look at and pleasing to hold. Colours and paper are all carefully chosen. Because they are aimed at
children, most books produced by Bux contain illustrations: in some cases, these are created by the
author but in many instances a separate specialist illustrator is involved. Design also includes the
book cover – artwork, book description (blurb), author profile and excerpts from reviews. Quality is
paramount throughout and is often reflected in higher prices than industry norms for children’s books.
Once a book has been completed, the text is reviewed to ensure that it meets the agreed requirements
in terms of content, quality and length. Bux’s editors manage the design and production process. The
book is allocated an International Standard Book Number (ISBN), a 13-digit unique identifier used as the
reference for cataloguing, ordering, inventory control and billing. After printing, the book is bar-coded
ready for retail sale. At the same time, if appropriate, the printing company creates an e-book version,
whether by converting from a printed copy or taking straight from an electronic copy. It usually has to
ensure that the e-book is itself available in a variety of formats to suit a range of devices.
Health and safety, sustainability and the environment
Bux works closely with its printers to ensure that they operate in as safe and as environmentally
friendly a manner as possible. Some books contain small electronic and other attachments that are
potentially hazardous to very young children. Where these components are sourced by the printers
from other manufacturers and suppliers, Bux checks rigorously to ensure that such companies uphold
the highest ethical standards, particularly in relation to child labour and materials, and that their
products are made to the highest quality standards. Where necessary and appropriate, all books carry
a notice on their cover indicating the minimum age for which they are suitable.
Sales, advertising and marketing
Competitors
Bux’s main competitors include mainstream publishers with their own children’s divisions (such as
Bloomsbury, Hodder and Random House) and publishers specialising in children’s books (such as
Usborne, Walker, Dorling Kindersley and Egmont).
Publishers vary in the strategies that they adopt to gain new authors, partly reflecting their attitude to
risk. Some of Bux’s rivals offer large advances in order to secure the rights to a writer but then pay
lower royalty rates, especially on e-books. Notable in this category is a new publisher, Terrapin, which
has been widely publicised as having paid £2 million to Tom Towers, a major film star, for a two-volume
autobiography in 2014, and £1 million to a new writer of young adult novels in 2015. Other publishers
take the opposite approach – small advances but higher royalties. Some of them also offer to acquire a
full set of rights (eg, rights for all sales in all territories or film rights).
Customers
Bux’s customers are in two categories: (a) shops (including all of the large chains of bookshops and
supermarkets in the UK); and (b) individuals (buying online in the UK and overseas). All sales, whether
from physical shops or online, are in £ sterling.
For category (a), the contractual arrangements are directly between Bux and the shops; the
printer/distributors serve simply as intermediaries in the process. Terms of trade vary: large chains
(both bookshops and supermarkets) typically negotiate longer payment periods with Bux than those
that apply between Bux and small retailers.
For category (b), the customer pays the platform-holder, typically via debit or credit card. Under the
terms of a revenue-sharing agreement, the platform-holder retains a share of the sales price (included
in ‘cost of sales’ within Bux’s management accounts) and makes periodic bulk payments to Bux.
Formats
The overall ratio of paperbacks to hardbacks (expressed as sales volumes) is around 3:1, but the figure
can vary between years and between genres: illustrated books for younger children tend to appear in
hardback only as softer formats are easily torn or otherwise damaged and so are not very durable. For
young adult fiction, in a year with significant new hardback releases, there will be normally more
hardback sales, but in the following year – when the paperback versions are published – the proportion
of paperback sales would be expected to rise.
Pricing
Printed books are sold with a ‘list price’, which is determined by a number of factors, such as format,
size, quality of paper, use of illustrations and popularity of the author. In practice, most copies are sold
well below the list price.
As an example, Bux sells a hardback book with a list price of £15 to bookshops (including online) at a
40% discount, ie, for £9. This is standard industry practice. (A bookshop may then choose to sell to
customers at its own discount.) The 60% share of the list price retained by Bux is usually enough to
cover all costs and make a profit. Costs include both (a) those common to all (print and e-book)
publishing – editorial, marketing and design – and (b) those specifically associated with print
publishing – printing, warehousing and distribution.
Sometimes, Bux drops its prices to discount shops in order to sell old and/or slow-moving titles (rather
than pulp them). In some cases, it moves books from larger bookshops to these discount bookshops,
where they can then be sold more acceptably to individual customers at very low prices.
The price of an e-book is determined by reference to a number of factors. Usually, but not always, it
will be lower than for the printed book as there are fewer costs to cover. For e-book sales, there is no
equivalent to the 40% discount.
Seasonality
As with many consumer-facing industries, Bux experiences some seasonality in revenue. Around
40% of each year’s sales of books (including e-books) typically occur in December–February, with the
other 60% spread fairly evenly across the year.
Advertising and marketing
Each book typically goes through a number of steps to reach its chosen markets. Bux’s sales and
marketing teams are responsible for a wide range of tasks, including:
 creating advertisements, press releases, direct marketing campaigns and other communications;
 publishing book excerpts online;
 approaching bookshops to stock the book and providing information to their ordering systems;
 arranging interviews with authors and encouraging them to participate in promotional events, such as
book fairs, seminars, and signings;
 sending review copies to newspapers, radio stations and television companies. In conjunction with
this, it aims to arrange up to five appearances for the author on appropriate television programmes.
Average promotional spend for a major new book launch is typically around £20,000.
Bux spends considerable amounts of money each year on more general promotional activities. This
includes attendance at events such as trade fairs. Social media, together with extensive contact
databases, are also essential parts of the marketing strategy. In addition, Bux is well known for its ‘Mini-
Reader’ scheme, in which it enlists adult volunteers from the local community to work with schools in
deprived parts of London so that every child aged 5–7 has a dedicated amount of one-to-one reading
time in the classroom each week.
Much of Bux’s profile comes from the frequent appearance of its books on bestseller lists and through
recognition across the industry. It has won many awards – in fact, more than almost any other
specialist children’s book publisher in the past five years. Recent accolades include Children’s
Publisher of the Year (8–11 age-group), Best Illustrated Work and Best Use of Technology, as well as a
commendation for promoting healthy lifestyles among children.
Rights
Bux operates a business model whereby it acquires the exclusive UK rights to a book but no other
rights. The rights for translation or film adaptation are separately negotiated by the author with other
media companies, but Bux gains the incidental benefit of increased popularity for the original book. Bux
publishes and sells only original English-language books; it does not publish or sell English translations
of books written in other languages.
BLANK PAGE
EXHIBIT 9a
Royalties and advances (Bux briefing document, updated March 2016)

Royalties and advances are the means by which most publishers pay authors for their work. The detailed
arrangements for royalties and advances, plus other key terms, are set out in a contract.
Royalties
When a publisher contracts with an author to publish a book, the author (who is the copyright holder –
see Exhibit 11) essentially grants the publisher the right to publish the work in return for an agreed
amount of money. This is called a royalty and is expressed as a percentage of sales. Royalties allow
the author to share in the income from a book throughout its life. They are based on the book’s net
sales price, and the contract should set out the relevant royalty rate for each type of sale. The net sales
price is the list price less discount given to the bookshop (customarily 40% but retailers are pushing
publishers increasingly hard on discounts). Royalties are based on net revenue, ie, any returns are
deducted for the purposes of the royalty calculation.
Publishers generally have a standard tariff of royalty rates for each format. As a guide, hardbacks
attract a 10% royalty; paperbacks, 7.5%. For e-books, royalties are usually in the range 20–25% of the
list price (ie, there is no equivalent to the 40% bookshop discount).
For an illustrated book where illustrations are created by a separate illustrator (ie, rather than the
author), royalties are shared between the author and the illustrator in a contractually agreed proportion.
As a simple example, if the hardback version of the book has a list price of £10, the bookshop discount
is 40% and the royalty rate for bookshop sales is 10%, the publisher pays the author £0.60 per copy
sold in bookshops. If the corresponding e-book has a price of £8 and a royalty rate of 25%, the royalty
per copy is £8 x 25% = £2.
Advances
An advance is an upfront payment by the publisher to the author for royalties. Effectively, it gives the
author a source of income while writing the book. Most conventional publishers advance an amount
of money to the author based on what they think the book will earn. This depends on a number of
factors, including: publisher’s profile; historical performance of similar books; author's track record;
and likely appeal of the book.
Advances can range from £1,000–£25,000 for a new author to £1,000,000 or more for an eagerly-
awaited young adult novel from a bestselling author with a huge fan base. (Bux is typically at the
lower end of this range: the highest advance that it has ever paid is £200,000.) They are usually
paid in three equal parts, at specified points in the book development process: (1) contract signing,
(2) manuscript delivery, (3) manuscript acceptance (or publication).
Established authors and authors with agents can achieve larger advances than newer authors and
authors without agents as they tend to have more experience in negotiating terms and conditions.
This means that they have more money upfront – but need to sell more in order to match the
advance (or ‘earn out’ – see below). While some books (eg, the first Harry Potter title) have
become bestsellers on a small advance, others have had large advances but then sold only a
small number of copies. This can have a serious effect on the publisher’s finances (especially cash
flow) and on its reputation: when a publisher pays a large advance, the publishing community soon
finds out about it, and the sales figures are also widely available. The publisher may then be
reluctant to take a risk with the author’s subsequent books.
‘Earning out’ and royalty payments
A book ‘earns out’ when the author’s royalties from its sales match the advance. For example, if the
author received an advance of £6,000 and is earning royalties of £0.60 per book (as in the earlier
illustration), and only the hardback version is currently on sale, he/she must sell 10,000 copies before
the book earns out. By industry custom, if a book underperforms, the author generally does not have
to pay back the unearned portion of the advance.
After a book earns out, and as long as it is in print and still selling, the author receives regular royalty
payments, accompanied by a statement of the number of copies sold. For an author without an agent,
the payment comes direct from the publisher; for an author with an agent, it goes first to the agent,
who then sends his/her own payment (royalty minus agent's percentage) to the author. The agent’s
percentage is not relevant for the purposes of calculating whether the book has earned out. It is the
agent’s responsibility to ensure that royalty payments take full account of all relevant sales.
Other methods of paying authors
Bux adopts the advance/royalty system of payment for all of its authors and illustrators, but some
other publishers use different methods.
For example, there are publishers that pay authors a fixed fee, which – although often paid in full
upfront – is not an advance against royalties. This may arise especially for illustrators who are
providing a small number of illustrations for a book, but it prevents the illustrator from participating in
its ongoing success. Sometimes, a ‘stepped’ arrangement is used, whereby the royalty rate changes
when a certain number of sales have been made: this can be important if a book becomes a long-
running success.
Some publishers have begun using new forms of payment, such as profit-sharing. In such a case, the
contract needs to define ‘profit’ clearly by specifying the costs to be deducted from revenue in arriving
at the ‘profit’ to be shared.
EXHIBIT 9b
Examples of advances paid by Bux
Set out below are two examples of advances paid by Bux, showing how they have (or have not) earned
out.
Both examples reflect Bux’s standard royalty rates: hardback 10%, paperback 7.5%, e-book 22.5%. For
both authors, all bookshops have been receiving Bux’s usual 40% discount on list price of the printed
versions (this also includes bookshops making online sales of hardbacks and paperbacks).
GF Randall
On accepting GF Randall’s first book, ‘Was’, in 2010, Bux agreed an advance of £150,000. The table
below shows the original estimates on which this was calculated and what actually happened. (Year 1
represents the year to 31 May 2011; Year 2, the year to 31 May 2012.)
GF Randall’s agent, Liza Halstead, provided the original estimated sales volumes and other
information. All figures relate to ‘Was’ alone; separate advances were negotiated for the sequels
‘Would’ and ‘Must’.
Estimate Actual
Sales (volume)
Year 1 (hardback) 35,000 56,131
Year 1 (paperback) 39,000 79,044
Year 1 (e-book) 24,000 62,669
Year 2 (hardback) 21,000 37,214
Year 2 (paperback) 86,000 101,755
Year 2 (e-book) 31,000 53,992
List price
Hardback (£) £15 £18
Paperback (£) £9 £12
E-book (£) £6 £7
‘Was’ appeared in hardback and e-book on 1 June 2010 and as a paperback on 1 December 2010.
Bux had originally planned to release the e-book at the same time as the paperback. The final version
was longer than initially indicated, so the eventual list price for all formats was higher. In addition, the
book was adapted into a film, appearing in UK cinemas from 1 March 2011 to coincide with the
publication of ‘Would’. At the time of the original proposal, there had been no plan for, or expectation of,
any film. Consequently, sales were faster than estimated: on the original basis, ‘Was’ was expected to
earn out within two years, but in fact the advance had earned out by the end of Year 1. The two
subsequent books in the trilogy also earned out their advance within 12 months.
Ruth Lang
Bux signed Ruth Lang amid a blaze of publicity in 2013. A well-known fashion icon married to a
leading Premier League footballer, Brandon Lang, she came with a high public profile and was
expected to become one of Bux’s leading authors. She did not feel the need to engage an agent and
carried out the initial negotiations on her own.
On accepting her book, ‘Beautiful Time’, aimed at girls aged 5–7, Bux agreed an advance of £90,000.
The table below shows the relevant figures. (Year 1 represents the year to 31 May 2014; Year 2, the
year to 31 May 2015.)
Estimate Actual
Sales (volume)
Year 1 (hardback) 10,000 3,062
Year 1 (paperback) - -
Year 1 (e-book) 20,000 7,139
Year 2 (hardback) 7,000 2,783
Year 2 (paperback) 24,000 10,973
Year 2 (e-book) 30,000 6,215
List price
Hardback (£) £14 £14
Paperback (£) £11 £11
E-book (£) £7 £7
Under the original estimates, the advance was expected to earn out by 31 May 2015, but as at that
date this was still some way from being achieved. Although all formats were available to buy on the
dates scheduled, it transpired that Bux had overestimated the level of interest in Ruth’s work, and
many bookshops were reluctant to give it a prominent place on their shelves. In addition, Ruth’s
attention was diverted by personal matters. As a consequence, the accounts for 2015 included an
impairment charge for the portion of the advance not expected to earn out.
EXHIBIT 10
Bux: Strategy (prepared at directors’ strategic review meeting, July 2015)
Our strategy is guided by an overarching theme that we are calling the ‘Bux Fives’ – five core
principles, five key risks and five objectives.
Five core principles
Our overall strategy is underpinned by five core principles:
Theme Principle
1. Reputation To maintain our reputation as a quality publisher of books that stimulate younger
readers, keeping the name of Bux at the forefront of the children’s book market.
2. Results To achieve the best results for our authors and to provide them with a truly
professional service.
3. Technology To optimise the use of technology across our business, whether in e-books or
in the systems that support our day-to-day activities.
4. Talent To continue to identify and nurture new talent (authors, illustrators and our
own staff).
5. Values To maintain the highest ethical standards and values, and to ensure that we
engage as suppliers only those companies that can demonstrate their
commitment to these standards and values.
Five key risks
We are mindful that we face a number of risks in our business – and that we have limited control over
some of them. Among those we have identified, we consider the following to be the most important.
Theme Risk and Bux response

1. Diversification: Bux has a large number of contracted authors and a large portfolio of titles. A
authors sharp decline in the sales of any one author or title (including any failure by
Bux to earn out a big advance) should not have a significant impact on overall
results but could affect Bux’s reputation and its chances of securing new
authors in future. We must remain alert in identifying underperforming works.
2. Diversification: There is the risk that the e-book ‘revolution’ has peaked and that sales of e-
income books could stagnate or decline. However, Bux’s e-book activities are at a
relatively early stage in their lifecycle and should continue to grow.
3. Diversification: Bux is alert to the risk of sole supplier arrangements for business-critical
key suppliers activities, especially printing and distribution. To minimise this, Bux has formal
(printers) relationships with two main printer/distributors, thereby maximising process
efficiencies and economies of scale. This also enables us to have cover in the
event of failure by one printer, offset by a minor temporary disruption in supply
and higher costs of working during any period of transition.
4. IT security Like many businesses, Bux constantly faces the possibility of a cyber-attack,
which could cause significant financial and/or reputational damage. We must
continue to follow best practice in IT security, with appropriate safeguards in
place to protect us against intrusion.
5. Intellectual Bux and its authors are under constant threat from copyright abuse, piracy and
property the unauthorised leak of new books (including e-books). We must at all times
guard against these actions: any one of them could result in major financial
and/or reputational loss.
Five objectives
We have set ourselves five objectives for the period between now and 31 May 2017. In particular,
having achieved revenue of £50 million in 2015 for the first time, we need to continue to increase this
figure in the next two years.
Objective Year to 31 May 2016 Year to 31 May 2017
1. To increase revenue each year Target of £53 million Target of £56 million
2. To increase gross profit each year Target of £24 million Target of £26 million
3. To improve quality of customer Purchase of software -
information for better sales targeting (cost of £0.5 million)
4. To form relationships with non-UK - Pilot with sample of 10 shops
bookshops in Republic of Ireland
5. To review outsourced printing - Target of £1 million annual
arrangements printing cost saving to Bux
EXHIBIT 11
Bux: Factsheets
Bux has produced an occasional series of factsheets to help new employees understand more about the
industry in which the company operates. A selection of these is included below.
Literary agents
Literary agents (‘agents’) are intermediaries between authors and publishers. They represent authors
and, acting on their behalf, they obtain book contracts and negotiate royalty rates. They also develop
relationships with publishers who are seeking new authors, as well as with established authors to publish
further works. There are many more writers than there are agents, and this leads to very strong
competition for representation among unpublished writers. Many UK agents are based in London.
Usually, an author approaches an agent with the draft manuscript of (for example) a novel. If the agent
wants to represent the author, he/she will then approach publishers on the author’s behalf, seeking to
sell the right to publish the work. Without an agent, an author is much less likely to be able to sign a
publishing deal. If a publisher offers a contract directly, an agent will normally be brought in to administer
the contract, and to manage the author’s career on an ongoing basis.
Agents take a percentage (usually 10–15%) of all the author’s earnings from publishers. Thus an author
has to be satisfied that he/she will earn more with an agent than without one – this involves weighing the
financial considerations against the advice, expertise and administrative support that agents provide.
Translation of children’s books
The translation of a children’s book begins when the author or original publisher of a book sells the
foreign language rights to another publisher, who will then issue the book in a new language and market.
The publisher who buys the rights chooses the translator (usually from the translator’s previous work or
website, or recommendations), and makes all decisions about how to present the book in its new form.
The publisher sometimes asks several translators to submit samples before awarding a commission.
Industry observers have noted a growing imbalance between books written in English and those written
in all other languages. While English language books are routinely translated into other languages, the
works of some excellent children’s authors overseas are often not translated into English at all.
Intellectual property
The UK benefits from a strong commitment to freedom of expression, which helps ensure that the huge
amount of creative content generated is legally protected and enforced. Copyright protects the work of
an author (or illustrator) and stops other people from using, copying, distributing, adapting or uploading it
without permission; this also applies to e-books. There will usually be a line in all editions of a book
stating that the author retains copyright to it. Under UK legislation, the copyright lasts for 70 years from
the end of the year in which either the author dies or the work is made available to the public.
Authors and publishers must guard against plagiarism – the wrongful appropriation and publication of
another author's words, thoughts, ideas, or expressions and the representation of them as original work.
While not necessarily a crime, plagiarism is viewed as a serious ethical offence, and can constitute
copyright infringement.
Sometimes, a new book is the subject of an embargo. This means that the publisher will not release
advance copies of the book to the media. If members of the media do get a copy of it before its
scheduled publication date, they are not allowed to publish a review of it before that date.
BLANK PAGE
EXHIBIT 12
Bux: Printing and distribution arrangements
Like many other publishers, Bux outsources its printing to external specialists. This is typically done
under a contract specifying (among other things) payment terms, dates and cancellation fees.
Bux’s printing is mostly carried out by two companies: Ethelred, a specialist in children’s books, and
Renoir, a more generalist printer. Both also carry out distribution for Bux: once books have been
printed, they are sent directly by the respective printers to retail shops or to individual customers who
have ordered them online. The key contractual terms in relation to the printing services provided by
each are as follows.
Ethelred Renoir
 Payment terms Due within 45 days of invoice Due within 30 days of invoice
 Currency to be used for payment £ sterling £ sterling
 Start date of current contract 1 December 2013 1 June 2014
 Expiry date of current contract 30 November 2016 31 May 2017
 Cancellation fee if contract
terminated by Bux with notice of:
- less than 3 months £100,000 £200,000
- between 3 and 6 months £75,000 £125,000
In the year to 31 May 2014, Ethelred accounted for 45% and Renoir for 55% of Bux’s total external
printing costs (£11.1 million, included in ‘pre-production and printing’) and its total external distribution
costs (£2.6 million, included in ‘marketing and distribution’). In the year to 31 May 2015, when Bux’s total
printing costs rose to £12.2 million and distribution costs to £2.8 million, these shares fell to 40% and
50%. The remaining 10% was for a number of smaller printer/distributors engaged to carry out one-off
jobs: this also gave Bux the chance to assess other potential providers, including a new company,
Auden. Ethelred’s prices for both printing and distribution are typically a little higher than Renoir’s for an
equivalent piece of work, but other factors – such as colour and quality of non-standard items such as
flaps – also affect the choice of printer for a given assignment.
Ethelred
Based in York in the north of England, Ethelred prints a wide range of children’s books, working closely
with a variety of publishers (and self-publishers). Recognising that the secret to a book’s success lies
not only in the words and the story but also in attractive pictures and covers, it places as much
emphasis on the artwork as on the text. Ethelred also produces e-books.
Ethelred uses the latest printing methods and machinery: most equipment has been upgraded in the
past 2–3 years, at significant cost. It also uses the best quality and most environmentally friendly paper
and colour print available, sourcing them through a consortium of major companies set up to enable
ethical buying of materials. Ethelred is a member of the book publishing industry’s initiative to promote
and improve standards for socially responsible manufacturing and for reducing the amount of ‘pulping’
of unwanted inventory, as well as raising levels of (and awareness of) recycling.
Ethelred also carries out warehousing and distribution for Bux and many other publishers and self-
publishers. The site in York covers an extensive area and is open 24 hours a day from Monday to
Saturday. It is highly automated, with a new, state-of-the-art warehouse management system and
advanced sorting equipment, plus rigorous security procedures limiting both physical and computer
access to authorised users only. Ethelred has won awards for safety and for supply chain excellence.
Ethelred has earned a reputation for high-quality, cost-effective children’s book printing and efficient
distribution. Its total revenue for the year to 31 December 2015 was £42 million (2014: £46 million).
Renoir
Formed in 2004, Renoir is a French company based in Paris with operations across Europe. Its UK
base is a large industrial site to the south of London, close to major motorways and rail routes.
Renoir prints books of all kinds on high-quality paper, using specialist machinery and market-leading
techniques. In 2007, it moved to its current location in Paris, purpose-built to meet the needs of
modern publishing. In 2010, as a result of increasing orders from clients outside France, Renoir
began printing for businesses in Italy, Germany and the UK – including Bux – and set up operations
in those countries.
The skills of its CEO, Karine Mallarme, have always influenced its technological development. Under
her guidance, Renoir has kept pace with the rapid evolution in the sector and often been among the
first to adopt new methods. Renoir has worked with Europe’s largest publishers, building its
reputation on its ability to print (and reprint) large quantities of books, including some international
bestsellers, to tight schedules and demanding specifications. It can also produce e-books suited to
any e-reader or other electronic device. Renoir has a range of ISO (international quality standard)
accreditations for the quality of its work, for its commitment to the environment and to the working
conditions that it provides to its staff.
Renoir also carries out a comprehensive range of distribution services for its publisher clients. It has
one of the largest book distribution networks in the UK. Its systems incorporate sophisticated, user-
friendly software, fast data processing, high-speed invoicing and report production. The UK operation
deals with a large number of retailers, ranging in size from big supermarkets through chains of
bookshops to small independent bookshops. Dedicated teams at Renoir’s head office work with these
retailers and the publishers, meeting regularly with them to identify display arrangements that will
maximise sales. These include initiatives such as ‘shelf-edging’, whereby (usually at the publisher’s
instigation) a handwritten slip is placed next to a particular book, with a mini-review extolling its
virtues.
Renoir’s total worldwide revenue in the year to 31 December 2015 was £105 million (2014: £91 million).
It is viewed in the industry as a potential takeover target for another printing company.
MEDIA COVERAGE
EXHIBIT 13(a)
Children’s reading trends (various sources)
The 2014 bestseller list for printed books was dominated by children’s titles. Seven of the top 10 were
aimed at children and young people. They were headed by The Fault in Our Stars, John Green’s tale of
a love affair between two teenage cancer patients, which was turned into a Hollywood film and sold
nearly 1 million print copies in the UK.
The strength of children’s literature is a huge boost for the publishing industry, which is grappling with
the shift to e-readers and closure of high street bookshops. Aside from textbooks, it is the only part of
the market where sales of printed books are still rising. “Parents are reacting to the all pervasiveness of
digital and social media,” said Philip Jones, editor of trade magazine, the Bookseller. One-third of
children aged 7 to 11 read books daily (or have books read to them), and around 65% do so weekly.
Although nearly three-quarters of households own tablet computers, only 23% of children use them for
reading, while 84% use them mostly for playing games. In Philip Jones’ words, “Teen and pre-teen
readers seem to value the ownership of physical books. It is almost something they want to keep and
possess as a piece of memorabilia.”
Something to treasure
A similar experience is reported by James Daunt, Managing Director of bookshop chain Waterstones,
which only a few years ago was close to oblivion. “I always believed there would be a natural point of
equilibrium with digital reading. If you go on holiday, you will see many more people reading a physical
book rather than an e-book. For books that you want to treasure, look after and sit on your bookshelf or
pass on to family and friends – the physical book is better. You are left with a memory; you’ve got
something that has an enduring value. Why wouldn’t you buy the physical book? You do not even save
much money by buying an e-book. Also, there is no easy way to copy a page from an e-book: it is not
as simple as photocopying from a printed book.” Daunt’s initiatives since taking over at Waterstones
have led to a turnaround in the company’s performance, with higher sales and a rate of book returns
down from a peak of 23% to 4%, well below the industry average of around 12%.
Reading in schools
Other research was undertaken by means of a project in schools across the UK to assess the impact of
access to e-books on reading motivation and skills, followed by feedback from teachers and pupils.
Among teachers, 85% felt that the project had increased pupils’ reading enjoyment and motivation, and
70% considered that it had increased reading skills: “It has been vital in encouraging boys to develop a
love of reading. The stigma of reading has been removed and pupils are actually sharing their
experiences with their friends across the school and creating somewhat of a 'reading frenzy', which is
fantastic!” Feedback from pupils included: “I like reading now, it’s more simple, it’s easier to use – I
read a lot more at home even”; “I’m more comfortable reading online, I’m not sure why”; and “I read at
home on my phone, my iPad, my brother’s game console … More people should try it.”
EXHIBIT 13(b)
Terrapin in deep water (Publish or Be Damned, 6 May 2016)

Publishing company Terrapin has filed a lawsuit against film star Tom Towers for failing to submit books that he
was contracted to write and for which he was paid a large advance. He is being sued for the first instalment of a
total £2,000,000 advance in respect of the two-volume autobiography for which he was signed up in 2014. The
rest of the money was due to follow on delivery and then on publication. However, "despite repeated and
frequent demands” (in Terrapin’s words), Towers has failed to repay the advance and owes Terrapin £650,000.
We understand that Towers’ books were to be ghost-written by a well-known arts journalist, who has instead
been busy finishing a history of European cinema.
EXHIBIT 13(c)
New Children’s Author Forum, May 2016, FAQ page

Q: If several publishers are interested in your work, should you just accept the highest advance?
A: Not necessarily. Money plays a big role, but there is more to consider:
 Do they promise a thorough marketing / publicity plan, with guaranteed media appearances?
 Do they seem excited about the book?
 Will they ensure that it is displayed prominently on bookshop shelves?
 What royalty rates are they offering?
 How much importance do they place on design and visual appeal?
 Do they have a history of keeping books in print for years and continuing to promote them?
 Do they publish 10 books a year or 400? How will that affect how your book is handled?
EXHIBIT 13(d)
Agent under investigation (Writing World, April 2016)
Writers’ agent Liza Halstead is the subject of an enquiry by the tax authorities. This follows an
anonymous allegation that she has ‘dealt inappropriately’ with the business affairs of her clients by –
among other things – submitting incorrect royalty statements and taking an excessive commission for
her work.
We understand that Liza has many more authors on her roster than the average for a single agent and
we are therefore not surprised that these issues have arisen. When asked for her response, Liza was
unavailable for comment.
EXHIBIT 13(e)
The One That Got Away (Storybook Stories, April 2016)
The history of the publishing industry is littered with stories about ‘the one that got away’. This term is used to
describe an author who was not signed by one publisher – because he or she did not appeal to the editor’s tastes or
did not suit the company’s current requirements – and who went on to be signed by another publisher and to
become a major name in the literary world.
Annette Lewis, Managing Director of Bux, has been around long enough to be able to tell several such stories,
usually with a smile. She has both gained and lost over the years. One example of a gain is Bernard Underne, who
approached Bux after being successively rejected by three large publishers that had found different reasons to say
“no”. One had no room for “yet another adventure series”; another felt that the descriptions of Underne’s imaginary
continent Jax were “too far-fetched”; while the third considered that Underne was “limiting the market for his books
by 50% in making them totally unappealing to girls”.
Lewis thought differently. “Call it a sixth sense but I could tell straightaway that we were on to a winner here”. As
indeed she was. The rest – as they say – is history.
EXHIBIT 13(f)
New kid on the (printing) block (Publish Now magazine, May 2016)
Taking the book world by surprise is Auden, a new printing company that claims that it is saving
publishers millions of pounds through the use of state-of-the-art systems.
Auden has been in existence since the 1990s and had until recently prided itself on its traditional
methods. However, following a recent change in management, Auden has re-invented itself as ‘the
printer for the 21st century’, in using both sophisticated new technology for its book printing and the
latest digital techniques for its e-book production. “Any printer that does not keep up with the rapid pace
of technological change risks falling behind and ultimately disappearing”, warns Auden’s new Managing
Director, Fred Brown, who has already announced a number of high-profile client wins.
EXHIBIT 13(g)
In the black book (Novel News, July 2015)
In 2014, Roger Thacker was a medical student who had just signed a book deal rumoured to be worth
£1 million. His first novel, ‘Toxic Death’, had just climbed to 59 on the UK bestseller lists. There was
talk of a film and a second book in time for Christmas. He seemed destined to become a leading author
in his chosen genre (detective fiction) and was being spoken about in the same breath as legends such as
Agatha Christie.
However, allegations began to surface that Thacker had ‘borrowed’ parts of his book – relating to the
actions of certain poisons on the body – from other authors in the field. Faced with evidence that he
could not deny, Thacker admitted to plagiarism, stating that he had been fascinated by some accounts of
poisoning that he had read and wanted to present them as his own. He agreed to pay a proportion of his
royalties to medical research charities nominated by the authors whose works he had plagiarised.

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CASE STUDY

This material is issued prior to the examination session on 20 July 2016.

Copyright © ICAEW 2016. All rights reserved. 222376

Assessment of the Case Study

 Assimilating and using information 22.5%

 Lack of professional independence or objectivity

1 About you (Bobbie Harding) and your employer (Bux Limited)

2 The UK book publishing industry: An overview

3 Children’s book publishing in the UK

4 Bux: Company overview

7 Bux: Key accounting areas

8 Bux: Key business processes

9a Royalties and advances

9b Examples of advances paid by Bux

12 Bux: Printing and distribution arrangements

You (Bobbie Harding) and your employer (Bux Limited)

Development of the publishing industry

The publishing industry today

The publishing industry and business model

Set out below are a number of key features of the industry.

Sales channels – printed books

Sales channels – e-books

The origins of children’s books in the UK

Children’s books today

Competition for leisure time

Formation and development

The current Bux board comprises the following six directors:

Revenue (Note 1) 50,106 43,798 39,392

Statement of financial position

Total assets 28,768 24,797 21,655

Total equity and liabilities 28,768 24,797 21,655

Profit before taxation 5,164 4,324 3,755

Change in cash and cash equivalents 1,394 2,114 1,007

2015 2014 2013

Printed books 45,391 41,862 39,230

Note 2: Cost of sales

2015 2014 2013

Pre-production and printing costs 18,520 16,631 15,049

Note 3: Administrative expenses

2015 2014 2013

Salaries, training and other personnel costs 10,355 9,458 8,872

Short Fixtures, TOTAL

 Short leasehold improvements: remaining life of lease

2015 2014 2013

Work-in-progress 1,946 1,438 1,391

Trade receivables 10,881 9,424 8,639

Note 7: Trade and other payables 2015 2014 2013

Trade payables 3,049 2,868 2,769

Year ended 31 May 2015

Advances and royalties

Commissioning and acceptance

Design and printing

Health and safety, sustainability and the environment

Advertising and marketing

Royalties and advances (Bux briefing document, updated March 2016)

Other methods of paying authors

Five core principles

Our overall strategy is underpinned by five core principles:

Five key risks

Theme Risk and Bux response

Objective Year to 31 May 2016 Year to 31 May 2017

Translation of children’s books

Children’s reading trends (various sources)

Terrapin in deep water (Publish or Be Damned, 6 May 2016)