Transcript
TEAM MENBER
Sisi JinHe LiuXinya HeHanjiao QianMuzi LiBinhui Hao
Overview
1. Corporate’s operation & strategy
2. Accounting Policies Analysis
3. Ratio Analysis
4. Cash Flow Analysis
5. Conclusion
Q1:A brief discussion on the company’s Operation & StrategySisi Jin(08119790)
Company’s operation Second largest company in UK’s soft drink industry. Current operations comprise Britvic GB, Britvic
Ireland, and Britvic France. Britvic both manufactures its own brand of drinks
as well as signs bottling deals.
StrategyCritical Success Factors Differentiation (3 Brand water strategy)
Distinct consumer targeting High growth segments Differentiated brand positioning
Licensing / Franchising of Britvic brands Enable other local companies to use its trademark and ingredients Produce and sell Pepsi products in GB an Ireland.
Distribution Network On-the-go distribution
Strong Customer Base “Big 4” supermarket
StrategyCritical Success Factors Analysis Differentiation (3 Brand water strategy)
Distinct consumer targeting High growth segments Differentiated brand positioning
Licensing / Franchising of Britvic brands Enable other local companies to use its trademark and ingredients Produce and sell Pepsi products in GB an Ireland.
Distribution Network On-the-go distribution
Strong Customer Base “Big 4” supermarket
StrategyCritical Success Factors Analysis Differentiation (3 Brand water strategy)
Distinct consumer targeting High growth segments Differentiated brand positioning
Licensing / Franchising of Britvic brands Enable other local companies to use its trademark and ingredients Produce and sell Pepsi products in GB an Ireland.
Distribution Network On-the-go distribution
Strong Customer Base “Big 4” supermarket
StrategyCritical Success Factors Analysis Differentiation (3 Brand water strategy)
Distinct consumer targeting High growth segments Differentiated brand positioning
Licensing / Franchising of Britvic brands Enable other local companies to use its trademark and ingredients Produce and sell Pepsi products in GB an Ireland.
Distribution Network On-the-go distribution
Strong Customer Base “Big 4” supermarket
StrategyCritical Success Factors Analysis Differentiation (3 Brand water strategy)
Distinct consumer targeting High growth segments Differentiated brand positioning
Licensing / Franchising of Britvic brands Enable other local companies to use its trademark and ingredients Produce and sell Pepsi products in GB an Ireland.
Distribution Network On-the-go distribution
Strong Customer Base “Big 4” supermarket
Q2:Accounting Policies AnalysisHe Liu (08117632)
Step 1: Key accounting policies
Revenue recognition: Allows for sales related discounts and rebates
Intangible assets and goodwill: Acquisition method Goodwill is not amortized Intangible assets: trademarks; franchises rights, customer lists
and software costs
Step 2: Degree of accounting flexibility
Post-retirement benefit: Assumptions: factors such as discount rate, inflation, pension
plans, salary increase, expected return on scheme assets, mortality and other demographic assumptions.
The numbers they allocated in the financial statement did not seem outlandish or vary greatly from year before
Step 3: Evaluation of accounting strategy
Comparing with Nichols (soft drink company) Similarities: many aspects (revenue recognition) Differences:
Reasons: Britvic has a lower operation capability in paying off the debts from suppliers
Step 3 (cont.)
Significant change (voluntarily)The average days of payment:2008: 36 days; 2009: 49 days (driven by higher
trade payables)
Q2:Accounting Policies Analysis
Xinya He(08118756)
Step 4: Quality of disclosure
Dis-aggregation--------The overall items are broken down as its segmental reporting that is organized into five reportable units through its geographic areas, which are GB stills- United Kingdom excluding Northern Ireland, GB Carbs-United Kingdom excluding Northern Ireland, Ireland, International and France
Good relation with shareholders-------Company gives presentations covering annual and interim results to analysts, investors and perspective investors. Business reviews section in annual report discloses the details of company’s financial performance, the risks it faces and plans for future.
Step 5: Potential red flag
Impairment in 2010 is 116.7 million while this figure is merely 4.2 million in the previous year. Possible explanations has been disclosed in the company’s annual report which states that Ireland business segment encountered a sustained economic downturn which cause 89.6 million impairment losses.
Step 6: Accounting Distortion
“Exceptional items” -----which permitted by the accounting rules group many one-off events that cause losses. So a company can produce two figures regarding earnings per share (EPS); the basic EPS figure which includes these losses and an "adjusted" EPS which doesn't
Britvic did this in its 2010 accounts; a statutory loss of 21.4p per share became an adjusted profit of 39.8p when the exceptional losses were ignored.
Q3:Ratio analysis
Hanjiao Qian(08119866)
Overview
Five categories of ratio: (FY 2008-2011, Britvic Vs. Nichols)
1. Profitability
2. Liquidity
3. Gearing/Leverage
4. Working capital management
5. Investment activities
Profitability ROE is a comprehensive indicator of a firm’s performance. But it cannot be
used to assess Britvic’s performance, because it disinvested one of its subsidiaries which leads to a huge retained loss in 2006, making the total shareholders’ equity be negative, and remains negative in following years.
ROA becomes the best choice. Overall, Nichols performs better than Britvic, and shows quicker recovery
than Britvic.
FY 2008 FY 2009 FY 2010 FY 2011
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
4.30% 5.48%
-4.61%
5.48%8.08%
19.46%21.46% 20.62%
ROA comparison
ROA(Britvic)ROA(Nichols)
Profitability Gross profit margin decreases: perform badly in cost control. Operating expense ratio: very high compared with Nichols
can explain why Britvic has a lower NPM even if its GPM is higher than Nichols. For future operation, Britvic plc. should pay attention to cost control and
improve efficiency.
FY 2008 FY 2009 FY 2010 FY 2011-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00% 54.01% 53.93% 55.07%51.39%
45.55% 44.76%
36.69%42.72%
3.43% 4.78%
-4.23%
4.53%
Profitability ratios
gross profit marginoperating expense rationet profit margin
Nichols: FY 2011Gross profit margin: 46.74%
Operating expense ratio: 28.39%
Net profit margin: 13.47%
Liquidity Two ratios are both improved. Current ratio: (1) increase; (2) value of ratio is still less than 1 (the ability of repayment).
Quick ratio (assess a company’s ability to meet CL based on higher liquid assets):
(1) use CA to repay CL more quickly than previous years. Nichols plc. still shows more efficiency in utilizing liquid assets to meet
current obligations.
FY 2008 FY 2009 FY 2010 FY 20110.00
0.20
0.40
0.60
0.80
1.00
1.20
0.81 0.90
1.00 0.99
0.63 0.72 0.77 0.76
Liquidity ratios
current ratioquick ratio
Nichols: FY 2011Current ratio: 2.14
Quick ratio: 1.88
Gearing/Leverage D/E ratio computation is meaningless (negative total SH’s
equity). But negative total SH’s equity indicates TA is less than TL,
reflecting high risk of liquidation. Interest coverage: although PBIT can cover interest payment,
compared with Nichols, less safe.
BritvicFY 2011
BritvicFY 2010
BritvicFY 2009
BritvicFY 2008
NicholsFY 2011
Interest coverage 3.50 3.81 2.90 156.46
Working capital management Days’ inventory increases: limit the ability to manage inventory efficiently. Days’ receivable increases: having problems in credit terms and collecting
cash from customers. Days’ payable increases then decreases: a free source of borrowing (due to
negative total SH equity), negative impact on company’s credit rating. Nichols shows more efficient working capital management.
FY 2008 FY 2009 FY 2010 FY 20110.00
50.00
100.00
150.00
200.00
250.00
40.56 41.41 48.51 50.07 55.86 61.64 65.06 67.60
191.67
216.90 228.48
209.03
Working capital management
Days' inventoryDays' receivableDays' payable
Nichols: FY 2011Days’ inventory: 31.90
Days’ receivable: 69.88
Days’ payable: 118.60
Investment ratios P/E ratio: a measure of future earnings growth. Huge loss in Irish market in 2010 had an impact of SH’s expectation of Britvic. Dividend cover: a measure of security. Reduce dividend is a bad signal. Nichols in 2011 shows higher future earnings growth and safe
dividend coverage than Britvic.
BritvicFY 2011
BritvicFY 2010
BritvicFY 2009
BritvicFY 2008
NicholsFY 2011
P/E ratio
13.01 16.32 14.53 14.46
Dividend cover 1.45 1.68 1.29 2.57
Q3:Cash flow analysis
Muzi Li(08119660)
Cash flow statement Britvic
2011Britvic2010
Britvic2009
Britvic2008
Nichols2011
Net Income 79.9 (28.8) 66.2 51.8 11.759
Long-term operatingAccruals
Income tax paid (20.9) (21.8) (18.9) (8.1) (3.068)
Financial costs 32 26.3 23.6 26.6 (0.072)
Other financial instruments 10.2 1.5 - - -
Impairment of property, plant and equipment and intangible assets 0.5 116.7 4.2 4.2 4.8
Depreciation and amortization 48.5 42.4 38.7 42.6 0.17
Shared-based payments 3.8 7.8 6.9 7.8 -
Net pension charge less contribution (27.9) (16) (13.4) (12.4) (0.748) Loss on disposal of tangible and intangible assets 4.6 1.3 1.7 3.0 - Tax expense recognized in the IS - - - - 4.225 Change in provisions - - - - (0.179) Operating cash flow before working capital investments 130.7 129.4 109 116.1 12.087 (Increase)/decrease in inventory (4.4) 1.3 (1.0) (2.0) (2.302) (Increase)/decrease in trade and other receivables (24.1) 10.4 (18.9) (15.3) (4.652) Increase/(decrease) in trade and other payables 22.8 (16.6) 41.8 44.4 7.05
Operating cash flow before investment in long-term assets 125.0 124.5 130.9 143.2 12.183
Net (investments in) or Liquidation of operating long-term assets and equipment
Proceeds from sale of property, plant and equipment 0.6 4.7 9.5 6.1 -
Purchases of property, plant and equipment (37.7) (40.2) (38.3) (45.3) (0.154)
Purchases of intangible assets (11.9) (9.8) (11.9) (5.9) -
Acquisition of subsidiary net of cash acquired (4.5) (151.9) - (6.8) (2.3)
Interest received - - - 0.3 - Finance income - - - - 0.072 Free cash flow available to debt and equity 71.5 (72.7) 90.2 91.6 9.801 After tax net interest income (expense) (31.1) (24.9) (25.2) (26.9) - Net debt (repayment) or issuance (9.5) 54.8 (7.3) (45.5) - Free cash flow available to equity 30.9 (42.8) 57.7 19.2 9.801 Dividend (payments) (40.3) (34.9) (27.8) (24.7) (5.195) Net stock issuance (repurchase) and other equity changes (1.0) 92.5 (3.3) (8.1) 0.083 Net increase (decrease) in cash balance (10.4) 14.8 26.6 (13.6) 4.689 Exchange rate differences (0.6) (0.5) 0.2 0.8 - Net increase (decrease) in cash balance- As Reported (11.0) 14.3 26.8 (14.4) 4.689
Cash Flow Analysis Operating cash flow before working capital investments① Depreciation and amortization and financial costs② Pension charges③ Outstanding impairment shown in 2010
Operating cash flow before investment in long-term assets① Constant increase in receivables② Constant decrease in payables③ Inverse situation witnessed in 2010
Continued Cash Flow Analysis Operating cash flow before investment in long-term assets① Constant growth or expansion② Acquisition of Britvic France was realized in 2010
Free cash flow available to debt and equity① Constant debt and dividend payments② In 2010, Britvic issued new debt and new stock to pay back the debt
and to raise fund.
Q4: Conclusion & ForecastingBinhui Hao(08119214)
Business Strategy
Recommendations Reinforcing their loyalty to maintain their strong customer base Updating products to hold on market niche and attract new
customers
Accounting Quality
Red Flags The ratio of sales and receivables The ratio of inventories The ratio of Operating Activities
Recommendation Paying more attentions to its overall operations to explain these
dramatic and abnormal changes
Financial HealthLess Competitive Lower liquidity Lower profitability Higher leverage
Recommendations Maintaining a certain current ratio in order to ensure adequate liquidity. Cost control and efficiency performance should be the priority of the
further development.
ForecastingThe successive growth of 7% in Sales and 10.8% in Gross profit in 2012
The historical sales trend An average annual growth rate
of 6.6%
Business Strategy New-product introducing Expanding market share
The successive growth of Net Revenue on an average of 1.8% in 2012
The historical sales trend An average annual growth rate
of 1.8%
The Conpany situation Mature market Increasing sales and gross profits
Forecasting
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