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Thursday, August 18, 2016 6:30:02 AM
Tre Kronor's issue is fundamental in its cost structure, particularly the direct cost of revenues.
While the company successfully cut general and administrative costs again in the first 6-months 2016 compared to 2015 by a significant amount (7.75% of revenues in 2016 vs. 8.97% in 2015) the cost of revenues actually increased slightly to 91.77% from 91.55% despite adding $5.7m in revenues. Very odd. Adding another million in revenues costs them more than the previous one.
We know the business model works in general because there are many profitable media service agencies around. In fact, UCPA's direct peer group of publicly US advertising agencies boosts a median net profit margin of 4.3% and operating profit of 11.1%. To illustrate, UCPA should have generated a quarterly profit of $510,000 to perform average among US advertising agencies. If there is more money to be made in the US, why don't management utilize its US public standing to offer services "locally".
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/margin.html
We also know the business model works in the Nordics because Howcom and Insight generate equity income distributions quarter after quarter to Tre Kronor. Those are pure net profits.
It is also very unlikely that the partner agencies of Local Planet chose to combine their strengths and services and in a private vs. public network if they'd all be cash strapped and generating losses.
So, management, just what are you doing wrong?
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