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Exhibit 2:

·      Technology is a growing issue.

·      Seasonality (50% of sales made in November to Christmas)

·      Short products life cycle

·      Fragile economy in the market

·      Sustainability requirements

Exhibit 3:

·      60% of sales in Q2 for their reporting period

·      Risks of broken supply chain

·      Overseas reliance

·      Saturated market

Exhibit 4:

·      Licensed board games becoming a higher % of total revenue compared to Heritage due to the growth.

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Exhibit 4:

stagnating product lines- heritage games are flatlining in terms of revenue

Low product mix - dependence on a few core products

Margin pressures - revenue grown but gross profits haven’t (cos issues)

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Market only really active through one quarter of the year, 60% of sales take place in October-December

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50% of sales come in November and December

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Key issues from the Advance Information (short list)

Falling gross margins / shrinking profitability — gross margin has fallen year-on-year (now ~24.0%) and operating profit is much lower than three years ago despite revenue growth.

Channel shift to online (and its costs) — online sales are growing fast ( >1/3 of revenue) which raises distribution costs (many small orders), increases returns, and creates fulfilment/IT capacity constraints.

Supplier / manufacturing risk — manufacturing is outsourced to a small set of suppliers; problems at PZ and use of subcontractors (including overseas) create volume, quality and timing risk.

Low-margin licensed products / licence-fee exposure — licensed games earn lower margins because of licence fees and stepped/minimum-fee arrangements that can hit cash/profitability.

Product lifecycle / portfolio risk — some heritage titles (e.g., Mucho, Lampho) are aging or fading, requiring refresh, discontinuation or acquisition strategy decisions.

Seasonality and liquidity pressure — ~50% of sales occur in Oct–Dec; cash dips before Christmas and the company nearly needed its overdraft.

Inventory & returns management — high inventory levels are required and online sales increase direct consumer returns, prompting a need for a formal returns policy.

Customer credit / concentration risk — reliance on large retailers with long payment terms and some customer cash difficulties that required restructuring.

Rising operating costs (admin / distribution / staff) — higher promo spend, recruitment for online order processing, pay rises and increased depreciation have pushed admin costs up.

Regulatory / reputational risks: product safety, cybercrime and sustainability — strict product-safety rules, cybercrime threats and increasing consumer demand for eco-friendly products require active compliance and supplier oversight.

Would you like these turned into a 1-paragraph executive summary you can paste into the exam, or expanded into quick exam-style talking points (causes → analysis → recommended actions) for each issue?

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Growth rate for licensed games rose at much sharper rate compared to Heritage + Jigsaw

Heritage games most popular (Lampho + Mucho) ~ declining popularity due to trend change)

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Jigsaws joint top for volume but presents the least value

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14.4% increase in revenue between 2019 and 2021 is more than offset by 16.3% increase in cost of sales over the same period, resulting in an overall decline in gross profit margin.

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their competitor Hamlin has aggressively negotiated licence arrangement making it 10% of net compared to gross for FFL

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Liscence fees are paid out of gross profit rather than net

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Revenue at £70m compared to competitor, sits in the middle

60% of revenue came in Christmas period- above industry average

Apps are free to use - costing in development but not being reimbursed by them just getting marketing from it

Licensed board games earning a lower gross margin

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Sales prices are MSRP when sold directly to cusomters through online sales

MSRP * 25% discount is provided to retailers

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1/3 sales are online - distribution costs

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1/3 sales are online - distribution costs

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Exhibit 5:

Retailers revenue dropped for third year in row. With online sales growing.

Manufacturing costs have increased 10% each of the past 2 years.

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Lampho makes only half the revenue as much as mucho and zyx

Lampho seen a decrease in sales and same with Mucho

Clown House has seen the biggest increase

Licensed board games went up by 21.1%

Online share revenue rose (18.1%)

Gross margin drop  (25.3% to 24.7%)

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25% discount on MSRP for third party sellers. Eroding revenue

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High regulation - BS EN 71. Non-compliance leads to fines, possible imprisonment

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High regulation - BS EN 71. Non-compliance leads to fines, possible imprisonment

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50% of sales made in Novemeber and December

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Growing demand for eco friendly games

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Licensing arrangements have a lower profit margin. May need to reevaluate whether to keep them for the board games.

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High production costs for heritage board games = drop in gross margin

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Trendy Toys has consistently contributed 10% of FFLs total revenue over the last 3 years.

YH contributed 8% of FFLs total revenue over the last 2 years, but this contract is due for renewal in Jan 2023 with management considering negotiations of terms.

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Growth rate for licensed games rose at much sharper rate compared to Heritage + Jigsaw

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9.4% increase in revenue compared to UK industry 4% decrease. good thing 

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9.4% increase in revenue compared to UK industry 4% decrease. good thing 

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One supplier is struggling, although they do meet the sustainability requirements that FFL want

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Opting to release a football game in the year of the World Cup (2022) smart thinking from them

Free to use apps, is this smart?

Due to move to online, distribution costs are rising faster than revenue, need to understand if this is feasible in the long run

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Their license agreement companies such as Ringover, Clown House and Mondo. With Mondo they dont exclusive rights hence competitors could also have rights

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Heritage board games and licensed board games both have positive sale mixes with high yields, earning greater proportion of revenue compared to their % volume. This differs to Jigsaw puzzles which represent 38.1% by volume but only 21.1% by value, showing lower yields.

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New contract due in 2023 with YH, opportunity to further improve total revenue from this customer.

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Business risk all key issues to the companies future

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Online's share of overall revenue rose from 15.4% to 18.1%, allowing more products to be sold at MSRP, increasing gross profit margin.

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There have been increased costs which are evident as there were higher prices but the average revenue per unit only increased by 1%

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Getting bullied by big suppliers for longer payment terms

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Competitors are expanding at a quick rate with new licence for Hamlin and Bonanza have just spent £5 million for Happy Holly

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Unable to reach agreement with overseas supplier due to common UK law, indicating minimum pricing requirements. Shareholder may agree with compliance to un law but reactive to lack of agreement in place

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Ring over gets 10% of annual gross revenue up to 4m and 8% above which is a lower total than what they get as a fixed fee. Therefore fixed fees are too high or estimates on sales are too low 

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Ring over gets 10% of annual gross revenue up to 4m and 8% above which is a lower total than what they get as a fixed fee. Therefore fixed fees are too high or estimates on sales are too low 

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Trendy Toys makes up 10% of FFL’s total revenue, which may give them a high amount of bargaining power

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Mucho

Zyx

Lampho

Other

Ringover

Clown House

Modno

Other Licensors

Jigsaws

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main retailer customers - Trendy Toys, Checkmate, Your home is our home, Jigjag (website)

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main retailer customers - Trendy Toys, Checkmate, Your home is our home, Jigjag (website)

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Trendy toys long standing customer and account for 10% of FFL sales revenue (possible dependency) - they continue to outperform the market and are looking to expand - potential increase in dependency

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Orvan

grand Games

PZ

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3 main competitors

Yolki

Bonanza

Hamlin

Retail customers

Trendy Toys

Checkmate

Your home is our home

Jigjag

Suppliers

Orvan

grand games

PZ

licensors

Ringover

Clown House

Mondo

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One of their main manufacturers - Grand Games is also one of the biggest in UK and conveniently also located in Cambridge.

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Trusted and important high street retailers have permanently closed. This could partly explain the decline in revenue by retailers sale channel since 2019.

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Hamlin Win of major licenses right from aggressive solutions

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Supply chain issues, especially with 2/3 of their suppliers facing issues

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Overseas Licenses could result in breaches of UK Regulations

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Lack of transparency - Are FFL disclosing any quality issues with their new supplier?

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Monitoring/ overseeing overseas manufacturing processes. Can be subject to unethical practices; poor labour practices and safety standards. 

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Monitoring/ overseeing overseas manufacturing processes. Can be subject to unethical practices; poor labour practices and safety standards. 

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Safety aspects in compliance with BS EN 71

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Grand Games factory flooding being replaced - depsite moving to a new factory, there could be temporary disruption until GG fully transitioned to new factory

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3 UK based suppliers which subcontract to other manufacturers including some overseas - hard to monitor quality / safety / working conditions

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Manufacturing of 59% goes through one manufacture, potentially issue of prices increasing with no alternative for FFL

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Manufacturing of 59% goes through one manufacture, potentially issue of prices increasing with no alternative for FFL

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Some online customers get games on Friday which are scheduled to release on Monday. This is an ethical breach as they may resell products before the official launch this goes again terms and conditions of FFL.

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Continuing the contract with PZ can be concerning as their quality does not seem to align with FFL's standards, therefore causing possible impacts to FFL's reputation

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FFL trying to rinse Bonanza in purchase of Lampho by including very high admin fees of £300k, without substantial reasoning

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Yolki (competitor) made one of its products more culturally diverse without increasing prices so there may be pressure on FFL to do the same

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Licence terms need to be explicit so that it reduces the risk of any breaches which would result in legal fees.

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Cybersecurity risks - a portion of sales made online so need to ensure GDPR compliance to safeguard customer details

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Cybersecurity risks - a portion of sales made online so need to ensure GDPR compliance to safeguard customer details

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1. The retailers sold games before the launch date of the games

2. Plastic in products goes against sustainability initiatives

3. Non uk subcontractors are harder to quality check

4. Conuterfiet products sold by 3rd parties

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The development of ESG and sustianability in customers could lead to people moving away if they dont keep up.

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Responsible supply chain – FFL insists manufacturers (including overseas subcontractors) comply with its Code of Conduct and the CARE programme (no child labour, fair treatment of workers). Risk if subcontractors fail to uphold standards.

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The subcontractors are located overseas in Germany and China. Ethical issues regarding the workplace standards etc and is hard to check on this

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Cash balance dipped in the run-up to the busy Christmas season, risk that they won't be able to fulfil obligations to staff in terms of wages, suppliers in terms of payment, etc.