Woolworth and Coca Cola Amatil Company Limited - Case Study Example

CRITICAL ANALYSIS OF THE REAL WORLD: FOSTER GROUP, WOOLWORTH AND COCA COLA AMATIL COMPANY LIMITED By (Student’s Name) Professor’s Name Course Name+ City Date of Submission Executive Summary Given the increased competition between firms both in service and manufacturing sectors of the economy, and the current global financial turmoil, there is need for these firms to strategically position themselves in order to be at the top of the competition. This calls for an urgent need in industrial innovation, strategy, trade policy and reformation throughout the functions of the firms especially in areas that are of key concern to the stakeholders. Investors are keen on investing only in those firms that will give them back the value of their investment and that are aware and keen in working in harmony with the community. Therefore, there is the need for firms, within in the industry, to focus more on key areas of concern especially in their financial performance, there corporate governance, environmental protection policy and credentials, and other global or regional, political/legal issues and economic factors and pressures that face them. This research will focus on the above factors in order to recommend the best firms to invest in. The research will analyze each of the chosen firms to determine the best performing firm and thereafter, relevant advice and recommendation will be showcased on the firm that will give back the investors value for their investment. Introduction This research will focus on three companies; Foster’s Group Limited, Coca-Cola Amatil Limited and Woolworths Limited. The research will only focus on four critical areas of the firms’ performances. The first is financial performance. In this area, the research will investigate the firm’s earnings per share, its earnings before interest and tax, the level and changes in the non-current inventory and changes in its debts, that is whether the total debt is increasing or decreasing and if so at what rate. The second area is in the corporate performance of the firm. This will focus on the organizational structure, performance reviews and appraisal of key members of the organization, auditing of the organizations financial statements and disclosures made by the management and their assertions. The third area is on the environmental protection credentials. Due to the rapid climate change and global warming, the research will look into the firms to evaluate whether they operate on a friendly environmental policy in their quest to mitigate the impacts caused by their firms and on energy and water conservation. And lastly, the focus will be on contextual factors. These will include the challenges and economic pressures facing the firms and how they have responded. Based on the above areas, the decision rule will be to invest in only those firms that meet all the above conditions and incase they all meet, only the firm with best financial performance will be recommended. It should be noted that the information for this assignment is derived from both primary source like the annual reports as well as secondary sources. Critical Analysis of the Real World: Foster Group, Woolworth and Coca Cola Amatil Company Limited Step 1, Financial Performance And Prospect: Foster’s Group Limited Foster’s group is incorporated in Australia and operates in brewing as well as in soft drinks. It is situated in Melbourne, Victoria and is controlled by SABMiller, a British multinational company (Margolis & Walsh, 2001). Foster’s Group brews Foster’s Larger and wines and spirits. Financial Performance highlights of Foster’s Group Limited for the year 2012 saw it post $210.2 million in earnings before interest and tax. This represented a growth of 7.7% on the basis of a reported currency for the year and 18.6% on the basis of a constant currency. It also represented a general growth of 13.5 %. Without the inclusion of the United Kingdom, the volume for the previous year was marginally up. It declined by $1.6 million for the year 2012. This was a management strategy to reduce volume from where it was not generating financial income for the company. Besides the company’s earnings, before interest and tax, increasing over the year 2012, the company’s non-current inventory also increased by 84% and a recorded an improvement in NSR per case by 1.6$. The group’s earnings per share (EPS) improved up from 14.8% to 20.9 cents per share. This was accompanied with a final dividend of 7.0 cents per share. Thus, it contributed to a final 13.0 dividends in full year franked at 50 %. The net debt for the Group went down to $34.4 million. The group enjoys strategic and operational flexibility credited to its strong Balance sheet. Step 2) Corporate Governance Performance The corporate governance statement gives an outline of the framework established by the Foster’s Group. The performance of efficiency and effectiveness of the board, individual directors and committees is conducted annually (Hershman & Mazero, 2008). The performance of each individual director is discussed with the chairman after every review. In the case of chairman’s performance review, it is discussed between the director representing the board and the chairman. After concluding the review, the performance of board committees is discussed by the board during subsequent board meetings (Hershman & Mazero, 2008). In order to carry out a comprehensive review, the board engages the services of an external consultant. This review is done on the board charter terms against each director, the leadership of the wine and on relevant external individuals. The chief executive officer’s performance is measured against certain predetermined indicators and key annual performance objectives (Mitchell, 2009). The performance and review of senior officers is carried out by the chief executive officer on annual terms and its review done by the human resources office. In cases where there is a conflict of interest between those of the individual director and those of the company, then director affected is excluded from such discussions and will not be allowed to vote on the matter unless allowed under specific circumstances (Mitchell, 2009). There is unlimited of access to the documents of the company, to the employees and advice to the directors. This is done on a fully aware account of the company. This means that every process is well carried out without any limit on the resources. There is a clear program of induction and training for directors. This also sets out the roles, duties rights and responsibilities of directors. There are fairly structured safeguard implemented in order to protect the reputation of the organization. This is represented by the ethical conduct of its employees (Monks & Minow, 2004). Integrity standards have also been set in safeguarding the finances of the group (Mitchell, 2009). This ensures accountability in reporting the finances and assets of the group. Thus, helps to increase the credibility of the information in financial statements of the group. The directors are required to annually make a written declarations confirming that the financial documents and the required books of accounts have been properly maintained. This will be construed to mean that there is a strong system of internal control and risk management. The audit is carried out by Pricewaterhouse Coopers. The functions of this external auditor are reviewed by the risk and audit committee. There is rotation of the functions of the lead audit partner in order to avoid over familiarity audit threat to independence of the auditor. There is also a strong internal audit function that is independent of the external audit. The risk and audit committee reviews the performance and effectiveness of this function and ensures that their strategies and recommendations have been implemented (Mitchell, 2009). Step 3) Environmental Performance Credentials Foster’s being a multinational producer distributor and marketer of beverages understands the direct link between its efficient and effective environmental and social impacts management and the success of its business (Kim & Nofsinger, 2009). Therefore, it is committed towards researching and mitigating the negative impacts of the group’s operations on the environment. The group is committed towards meeting all the environmental regulations in all its workplace around the globe, having a well structured and consistent system of environmental management, carrying out improvements throughout the globe on areas of its operations. Integrating environmental considerations into the key operations of the business. The company ensures that all the stakeholders of the organization are aware and comply with the environment policy and practices. It also ensures adherence to the responsibility in the consumption of resources and minimizing wastage and recycling materials used and finally protecting and restoring biodiversity (Kim & Nofsinger, 2009). Step 4) Contextual Factors Foster’s group has faced to the issue standing in between of its business success and has made a good progress on the implementation of the necessary changes in shaping its future growth. Given that the group is operating, globally, the organization yielded to pressure to build an entity with one culture that is more sustainable as compared to its competitors (Monks & Minow, 2004). COCA COLA AMATIL COMPANY LIMITED Coca-cola Amatil and its subsidiaries are in the business of marketing and distribution of non-alcoholic beverages that are ready to drink in Australia, Indonesia, Papua, Fiji and New Zealand. The company also is engaged in the processing, marketing and distribution of vegetables and alcoholic drinks. The company was established in the year 1904 and it is based in Sydney-Australia (Bidgoli, 2012). Financial Performance Coca-cola Amatil announced its financial performance for the year that ended June 2013. The net profit attributable to members went down to AUD 216 million from the previous AUD246.2. This was a 12% decrease in the net profit. This decimal performance can be attributed to its tough conditions in major outlets and its grocery stores. During the half year results, the net profit that was attributed to members included a very significant loss of AUD9.2 million. This was after income tax. There was a further fall in the income before interest and tax by 6.8%. That is from AUD 360.7 million from AUD 387.1 million. Its total revenue went down by 3.4% that is from AUD 2.43 to AUD 2.36. Earnings per share fall from 32.4 a year ago to 28.3. This was a 12.7% fall. The net cash flow from the company’s operating activities decreased to AUD 166.7 million down from the previous AUD 196.9 million. The capital expenditure decreased to AUD187.4 from the previous year of AUD 211.4. The net debt increased to AUD 1920 million against the previous year’s AUD1643.9 million. The full year results will have a net decline of 4% in earnings before interest and tax. The non- current inventory decreased by 10% (Tricker, 2000). Step 2 Corporate Performance The corporate performance of Coca-Cola Amatil limited saw the board of directors represent the shareholders and the board having to deal with significant matters. The board is tasked with giving the company a strategic direction, reviewing and approving the budget, ensuring that the company is meeting all the legal requirements, ensuring adequacy of risk management policies, appointing and fixing the remuneration of the group managing director and being accountable to the share holders on the management of the company (Bidgoli, 2012). The board’s audit and risk team meats after every 3 months and reports to the board on matters of concern. The risk management policy has been implemented to over an oversight on management and control of business risks considered material (Bidgoli, 2012). On financial reporting, the company has issued a written declaration that it has complied with all the statutory requirements. It has also declared that the financial statements portray a true and fair view of the company’s state of affairs. And also that the internal systems of controls are effective and operational. Step 3 Environmental Credentials Coca-Cola Amatil has been reporting on its carbon emissions and researched on opportunities to reduce these emissions since the year 1999. This is in support of the Greenhouse challenge of the Australian Government. The company is also a participant in the Carbon Disclosure Project. This has seen the company included in the climate leader’s index. This index is recognition in the disclosure to the industry climate change issues. The company earned a position in top 25 out of 141. ASX 100 also New Zealand X50 (Bidgoli, 2012). Coca-Cola Amatil recognizes that besides water there is need to conserve energy and protect the climate. Energy efficiency and emission stabilization has aided the company to reduce costs and the impact of emissions on the environment. It is the strategy of the Coca-Cola Amatil to increase the rate of energy awareness and to implement strategies to save it, reduce its current impact of emissions and increase the corporate activities in Australia (Bidgoli, 2012). On energy saving, the company has installed a pasteurizer with an annual saving of 50 tones of CO2. The optimization project to save 807 tones of CO2 per annum. Construction of a new air compressor to save 588 tones of CO2 per annum, a 2.5 % Green power purchase that will offset 411 tones of CO2 per annum and a power correction that will save 333 tones of CO2 per annum. Step 4 Contextual Factors A choice has to be made regarding the future of the liquor industry in Australia. There has been very low confidence for the past 15 years. There is an eminent slowdown in economic activities. Coca-Cola Amatil cannot bunk down. The company has noted that they will be judged by what they do and not just by mere statements. The company demonstrated this by using an example of obesity. The disease according to the company affects more in the soft drink beverage than in the liquor sector (Bidgoli, 2012). Experts have warned about a likely increase in health care costs associated with increased cases of obesity. There is a common perception that most cases of child hood obesity is caused by soft drink beverages. This is contrary to research that shows lowest measurements of carbohydrates and fats in soft drinks as compared to flavored milk and fruit choice. It should however be noted that as much as this issue faces the company, the cases of obesity continues to rise despite decline in soft drinks consumption. A proactive approach in Australia made with a Daily intake guide where by over 400 products have been labeled. Then a threat that CCA faced were efforts to ban soft drinks. This brought about a new product of coke zero. Coca-Cola Amatil is now looking into portfolio balance. WOOLWORTHS LIMITED Woolworths limited is a company that has its headquarters in Australia. It opened and started operations in 1924.Woolworths engage in consumer electronics, supermarkets, liquor and petroleum outlets as well as discount departmental stores. It also has interest in hotels (Bateman & Snell 2012). Financial Performance In Australia, the retail sector suffered due to high interest rates and negative off show news. Inspire of these factors, the turnover went up by 11.8% and profit before interest and tax went up by 4.5%. Return on equity for the group went up to 47.1% from 4.1%. The earnings per share went up by 16.6 and diluted earnings per share were 26.6 higher as compared to the e previous year. The headline earnings per share and diluted headline earnings per share also went up by 24.4 and 24.2 respectively. Turnover for Woolworth’s retail which includes general merchandise and food segment had its turnover go up by 7%. The costs incurred in stores went up by 16.8. Woolworth’s inventory increased by 87.3% .The Company’s debt decreased by 33.4%1n the year 2012. It has decreased from 1420 million to 1220 million to 980 million for the years 2010, 2011 and 2012 respectively. Step 2 Corporate Governance Corporate governance is at the core of Woolworth’s business. It ensures that the practices and policies of the company in key areas of remuneration are adhered to. It also ensures that there is adequate disclosures and accountability. The company is composed of a board of directors, and below it, is the nomination committee, audit risk and compliance committee and the people policy committee. Nomination committee is tasked with the hiring and induction of the directors; it also evaluates the performance of the board annually (Solinger, 2013). The audit risk and compliance committee is tasked with coming up with the general audit strategy, setting up risk policies and framework , setting up strong systems of internal controls, financial reporting and the accounting functions of the company. The peoples’ committee is responsible for human resource strategy and remuneration policy, the health and safety of the organization and lastly, the development and succession activities of the company (Bateman & Snell 2012). The finance CEO has also declared, in a written statement, that the financial statements and records have been maintained as required and that they portray a true and fair view of the organization’s state of affairs (Bateman & Snell 2012). Step 3 Environmental Protection Credentials Woolworths limited recognizes that they can reduce on carbon emissions as a way of positively influencing supply chain to be more efficient and suitable. The company has devised a strategy on carbon emissions, water, packaging and waste and recycling. On carbon emissions and climate change, Woolworths limited believes that by reducing such emissions, it makes the best of the business sense. It has a target of reducing the emissions from carbon by 40%. The company has implemented both for new and existing stores critical areas of lighting, refrigeration and air conditioning (Bateman & Snell 2012). On matters related to waste and recycling, Woolworths recycles of up to 213,000 tones of materials from the landfill. This makes Woolworths the largest company in Australia to recycle materials (Bateman & Snell 2012). Step 4 Contextual Factors Due to the domestic and international financial turmoil, shortage of food and oil, and inflation, a lot of economic pressure has been applied to the Australian food and energy sectors. These has necessitated Woolworths to invest in a new and more efficient technology in order to align itself with the fast changing, local, regional and international trends. These improvements were integrated into the company’s stores to offer its customers a satisfied experience in retailing. Woolworths strategized for expansion in its global capabilities in its quest to secure savings on cost price and improved product and service quality (Goss, Miller & Gross, 2009). Recommendation and Conclusion From the information on financial performance, the following is a summary of the considered companies. Foster’s limited Coca-Cola Amatil Limited Woolworths Limited 1. Earnings before interest and tax Increased from 160 million in the year 2010 to 187.2 million in 2011 and to 210.2 million in the year 2012 Decreased from 270 million in 2010 to 246.2 million in 2011 and to 216 million Increased from 120 to 122 to 123 in the years 2010,2011and 2012 respectively Foster’s limited Coca-Cola Amatil Limited Woolworths Limited Total debt Went down from53.2 million to 49.4 million to 32.4 million for the years 2010,2011 to 2012 respectively Increased from 1780 to 1920 to 16439 for the years 2010, 2011 and 2012 respectively Decreased from 1420 to 1220 to980 for the years 2010, 2011 and 2012 respectively. Based on the recommendation criteria, personally I will recommend investment in the company: Foster’s Group because of its financial performance. Its earnings before interest and tax have steadily increased over the three years and its total debt has decreased tremendously. 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