Financial Information for Business Decision - Coursework Example

The British Land Company PLC, which is a real estate investment trust, involves in the management, financing and development of commercial property in the United Kingdom. The organization has investments in retail warehouses, offices, high streets, shopping centers as well as superstores. The retail warehouse portfolio of the company is inclusive of ninety three retail warehouse properties, (sixty nine retail parks and twenty four solus units), one hundred and two superstores and ten shopping centers. It occupies a total floor area of twenty three and a half million square feet. The company deals in third party land development and capital management. Nevertheless, it runs capital management trusts referred to as Hercules Unit Trust, the Pillar Retail Europark Fund and the Hercules Income Fund. The headquarters of the company is in London, at the Seymour Street. However, the business model adopted by the company is both risk aversive and opportunistic, which enables them to be in a position of attaining the long-term growth in her shareholder value. The major focuses of the company include: the maximization of equity returns, which is done via optimal financing and joint ventures; it aims at the creation of incomparable or excellent long-term ventures with strong covenants; it also focuses on the major assets in the office and retail sectors; as well as aiming to enhance the property returns via active development and management. In addition, we find that flexibility is imperative to high returns for the company that is both in terms of business financing and business organization. This will greatly enable them to take advantage or capitalize on the changes in the property market1. Whenever a business is started, we find that it either implicitly or explicitly adopts a specific business model, which defines the design of the creation of value, its delivery, as well as the capture of the mechanisms applied by the business enterprise. Nonetheless, the significance of a business model is its description of the way by which the business venture delivers value to its clients, attracts the clients to pay for value and also changes the payments to returns. Therefore, it reflects the presumption of the management as regards what is wanted by the clients, and the way a business can be in a position of meeting those needs in the best way possible, get reward for doing so and making a profit2. Profitability of the company over the past five years The company’s five year record is summarized as follows: For the year ended 31 March 2007 to 2011, these were the results; the gross rental income in (£m), in 2007 was 706, 2008; 709, 2009; 650, 2010; 561, 2011; 541. The underlying profit before tax in (£m), in 2007 was 257, 2008; 284, 2009; 268, 2010; 249, 2011; 256. The earnings per share in (pence), in 2007 was 389.4, 2008; 251.2, 2009; 614.1, 2010; 132.6, 2011; 53.8. The underlying earnings per share in (pence), in 2007 was 35.9, 2008; 44.3, 2009; 41.0, 2010; 28.4, 2011; 28.5. The dividends per share in (pence), in 2007 were 16.9, 2008; 29.0, 2009; 29.0, 2010; 26.0, 2011; 26.0. The net asset value per share in (pence), in 2007 was 1394, 2008; 1114, 2009; 398, 2010; 504, 2011; 567. The EPRA NAV/adjusted net assets in (£m), in 2007 was 862, 2008; 9368; 2009; 3876, 2010, 4073; 2011; 1014. The total properties at valuation in 2007 was 903, 2008; 47116, 2009; 62513, 2010; 5398, 2011, 9, 5728. The net debt in 2007 was 741, 2008; 4137, 2009; 9416, 2010; 0814, 2011; 1734. The total return in 2007 was 14.3 percent, 2008; 18.1 percent, 2009; 61.6 percent, 2010; 33.5 percent and 2011; 9.5 percent3. Why Revenue has behaved as it has done so over the past 5 years The revenue for the company has behaved in different ways over the past five years, and these are as a result of various factors. On conversion, we find that there was a substantial increase in the dividend payout between 2007 and 2011. The resilience of the income flows implied that the company was in a position of maintaining this high dividends level despite the drop of forty percent in the United Kingdom commercial property values during the years 2007 and 2008. The cash element of the gross rental income that was realized during the financial year that ended in March 31, 2011 from properties stood at 541. These are the incomes that were not subject to the security interest. The property operating expenses that are related to the investment properties that never generated any rental income were one million pounds, in the year 2008. The underlying pre-tax profit at two hundred and fifty sis million pounds were about ten percent ahead of the year 2010, excluding the impact of a sixteen million pounds provision that was released in the period 2009/2010, with acquisitions and leasing activities substantially offsetting the net revenue given up by the disposals in that particular period. The portfolio value increased by about seven percent billion pounds driving the NAV per share up twelve and a half percent to five hundred and sixty seven pence. In addition, the good show in the rental values demonstrated the continuing occupier demand for space that is of high quality in the appropriate sites. Leasing activity brought about grosser rental income on annualized basis. Furthermore, in retail, we find that the performance polarization between the best retail assets and the others was much in evidence as the retailers carried on with their focus on space on little larger stores in the locations that have good performance. There are good demand levels for space on the company’s schemes around the nation with occupancy remaining strong4. Behavior of other key aspects of the Income Statement When we look at the company’s statement of cash flows, we find that the money that has been going out, overall between the year 2007 and the year 2011, is less as compared to the income that has been generated over the same period of time. Statement of cash flows being one of the key aspects of the income statements of the company has seen or experienced this kind of trend due to several factors, such as slight changes in the management which have occurred during the five year period that has seen integrity and accountability within the accounting department as well as some other important departments within the company being upheld. This has also been achieved by the company as a result of adhering to the company’s business strategy which is ensuring that there is the maximization of equity returns as well as ensuring that both the clients and shareholders get good and favorable environment to operate. This good performance is in average, though the company has performed poorly in the year 2011 as compared to the year 20075. When we look at the net debt, in the year 2007 it stood at 741, and in 2011 it stands at 1734, but this is a great improvement considering that is was 9416 in the year 2009. The company’s asset valuation has also seen a substantial growth, which is mainly as a result of the expansion of market, which has been driven by demand. The company saw an increased demand in its services particularly in the years 2009 and the year 2010, which led to it recording a 61.6 and 33.5 percent in total returns respectively. This prompted the expansion of premises by opening more stores so as to be in a position of meeting the huge or steadily increasing demand. Therefore, we can say that increasing demand is one of the factors that has greatly had effects on the behavior of the key elements of the financial statement. Comparison between British Land Company and Capital Shopping Centers Group British Land Company and Capital Shopping Centers Group are among the largest real estate companies in the whole of United Kingdom. Collectively, they control a substantive percentage of the total market share due to their big investments6. However, the Capital Shopping Centers Group is bigger that the British Land Company in that it has a property portfolio value of seven billion pounds as at 31 December 2011, whereas that of the Capital Shopping Centers Group stands at 4.2 billion pounds. In terms of the total yield, both companies experienced mixed results, but it is considered a good performance in general. For instance, the Capital Shopping Centers Group started slowly in the year 2007 recording a total revenue of 4.30 percent in the year 2007, but went on to perform better in the years 2008 and 2011 recording a total of 4.80 and 4.70 percents respectively7. The same case applies to the British Land Company which also in the year 2007 had a revenue of 14.3 percent, and then went on to record a better performance in the years 2009 and 2010 whereby it stood at 61.6 percent, and 33.5 percent respectively. The biggest difference in performance between the companies came in the underlying profit before tax whereby the Capital Shopping Centers Group saw a steady rise within the five year period, recording -124.80 million pounds in the year 2007 and 36.20 in the year 2011. In fact, the pest performance was recorded in the year 2010 whereby it was 446.20 million pounds. This is contrary to the British Land Company that had 257 million pounds in the year 2007 and 256 million pounds in the year 20118. Summary From the financial statements of the British Land Company recorded above, we can strongly conclude that the company is steadily growing in line with its business model in order to attain its set goals and objectives. For instance, the cash in the operating activities has been lowest during the year 2011 standing at one hundred and eighty two million pounds, while in the year 2008 it was four hundred and seventy seven million pounds. The company’s strategy which partly is about the maximization of equity returns, which is done via optimal financing and joint ventures; seems to be working well, and the substantial growth of the company or its good performance can be attributed to this. The net cash outflow/inflow before financing was one thousand and thirty nine million pounds in the year 2008, but fell to -30 in the year 2011. Some of the major factors that have resulted to the good performance of the company is the considerable growth in the United Kingdom property market. This is so as it pushed the demand for housing and real estate investment high; thus being a big plush to the British land Company. Its strong financial position greatly enabled the company to navigate through or survive the global recession that nearly tumbled several economies9. This means that with the ways things are going, it is projected that the performance of the company within the coming five years will be remarkable. References Solomon J. and Aris S 2004, Corporate governance and accountability: John Wiley, 2004. The British Land Company, 2011, The British Land Company PLC Annual Report and Accounts 2011. Read More