Business Performance

Pre-work Activity 1
Assessment 2

Background information
TrailBliss Outdoors (TBO) proudly leads the way in crafting, promoting, and delivering outdoor attire and gear that
captures the imagination of a wide-ranging audience. Over a span of three decades, the company has artfully crafted
outdoor gear to harmonise with the varied terrains of both Australia and New Zealand. TBO boasts a seamless blend of
brick-and-mortar stores and a robust online presence, with its headquarters anchored in the vibrant city of Brisbane,
Australia.

Within TBO's promotional repertoire, three key messages resound:

 TBO’s products exemplify adaptable – Tailored to meet the unique needs of our customers and the multifaceted
landscapes scattered across Australasia.
 TBO’s products embrace sustainable – Designed with a mindful approach to people and our planet. Our suppliers
are carefully chosen to align with our company sustainability principles.
 TBO’s products embody originality – Unique creations that stand without comparison in the market.

The chief executive (CE) acknowledges that TBO’s success depends on the following factors:

 Well-trained staff
 A robust online infrastructure
 Effective communication of our sustainability commitment
 A superior in-store customer experience
 Staying true to our three core promotional messages.

You are a Chartered Accountant who was recently employed by TBO. Your first task is to review the annual budget for
the period ending 31 December 2024. The budget has been prepared by the previous accountant and the CE is
concerned it is already outdated and does not reflect the direction that TBO intends to take. The following assumptions
and directives were recently outlined by the CE:

 Anticipate an inflation rate of 2% throughout the budget year.

 Product selling prices are expected to increase in line with the inflation rate.
 Salaries and wages are projected to rise, on average, 3% higher than inflation.
 The budget delivers an increase in operating profit margin of 5% compared to the actual 2023 results.
 A shift to a new primary supplier for specific clothing products will commence on 1 July 2024, resulting in cost
savings compared to 2023 actual costs.
 There is a need for a budget growth strategy in revenue that is higher than inflation on a store-by-store basis.
 Expect a gradual rise in interest rates.
 Minimal changes are anticipated for the Australian and New Zealand stores during the budget period, with no
change in store numbers.
 New stores are expected to open from a planned expansion into the United States (US) market from 1 July 2024.
This expansion will be funded by additional bank loans.

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 You have also been given the actual results for the 12 months ended 31 December 2023 to help you review and
analyse the annual budget to 31 December 2024.

Table 1 provides relevant financial information.

Table 1: Financial performance information

Annual budget year Actual year ended Variance Change
ending 31.12.2023 ($’000) (%)
31.12.2024 ($’000) ( ) unfavourable
($’000)

Revenue 546,643 541,422 (5,221) (1.0)

Less: Cost of goods sold 428 0.2

210,344 209,916
(COGS)

Gross profit 336,299 331,506 (4,793) (1.4)

Gross margin 61.5% 61.2%

Operating expenses

Administration expenses 10,345 10,216 129 1.3

Depreciation 10,660 10,647 13 0.1

Interest expenses 3,074 3,100 (26) (0.8)

Store occupancy expenses 70,434 70,144 290 0.4

Sustainability expenses 1,764 1,436 328 22.8

Staff training expenses 731 771 (40) (5.2)

Sales and marketing 580 0.8

69,552 68,972
expenses

Technology expenses 2,268 2,545 (277) (10.9)

Wages and salaries 92,509 90,972 1,537 1.7

Total operating 2,534 1.0

261,337 258,803
expenses

Operating profit 74,962 72,703 (2,259) (3.1)

Operating profit % 13.7% 13.4%

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 Pre-workshop required
1. Provide an analysis of three (3) areas in the annual budget for the year ending 31 December 2024. In your
analysis you must consider the following:

 The background information, including the assumptions and directives made by the CE
 Company success factors
 Actual results from 31 December 2023.

Workshop Activity
During the workshop, half of the members of each group will be required to communicate their results to the CE
of TBO. Specifically, each group member will present for up to one minute each on their analysis points.

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