Origin Enterprises plc - Assignment Example

? ACCOUNTING SOCIETY AND THE ENVIRONMENT Table of Contents Table of Contents 2 Introduction 3 Review of Annual Report and Director’s Report 3 Market Situation 4 Core Competitors 5 Profitability 5 Current Financial Position 6 Different Issues of Origin Enterprise Plc (Ethical, Social and Environmental) 6 Profitability Ratios 8 Liquidity Ratio 8 Efficiency Ratios 8 Gearing Ratio 9 Reference 10 Introduction Origin Enterprises plc specialises on the field of food and agri- nutrition which is listed on AIM (under London Stock Exchange) and IEX (OIZ) (Under Irish Stock Exchange). The manufacturing and distribution operation of the agro nutrition division is based in the United Kingdom, Norway, Poland and the Ireland. There are many renowned items produced by the company. Some of those renowned products are crop nutrition, feed ingredients, marine proteins and oils and integrated agronomy services etc. which provides a leading edge in the competitive market. On the other side the food division of the company is categorized into four segments i.e. manufacturing, marketing, sales, and distribution which is primarily based on Ireland. Presently, the company is in leading position due to supply quality of foods across manufacturing sector, food service sector and the retail sector. Here the researcher tries to analyse the different aspects of the Origin Enterprise by analysing the annual report as well as the Director’s report. In this report, the researcher highlights the different social, ethical and environmental issues. The financial analysis is also integral part of this report. Review of Annual Report and Director’s Report General Overview of the Origin Enterprise Plc The functional network of Origin Enterprise Plc comprises with manufacturing of agri-nutrition products and supply and distribution of the products through different channels. There are two operating wings of the company i.e. food division and agri-Nutrition division. There are four segments of agri-Nutrition operational wing namely feed ingredients, fertilizer blending, marine proteins and oils and integrated agronomy services. There are number of joint venture and business subsidiaries that are attached with the business network of the company. All the operation of the Origin Enterprise Plc is based on the Republic of Ireland, Poland, United Kingdom, Ukraine and Norway. There are a number of food brands of Ireland, food services retail convenience segments, manufacturing sector and home baking that are related with the business network of the company. On the other side, the foods wing of Origin Enterprise plc is consisted with three food brands namely Roma, Odlums and Shamrock. There are two subsidiaries of the company i.e. R & H Hall Limited and Goulding Chemicals Limited. The sales revenue of the company decreased 11 % in 2012 comparing to that of in 2011. The segment wise analysis of the company shows that the sales revenue of Food business division is higher than the Agri-nutrition division. Target Market The Agri-Nutrition business is distributed through its manufacturing and distribution operation in Ireland, United Kingdom, Poland and Norway. The Food division activities are mainly based on Ireland and supplies the Italian food ingredients, home baking and convenience categories across the retails, food service and manufacturing sectors. Company generates 50.4% of the total revenue from the Ireland and 49.6% from rest of the world (Annual Report, 2012). Market Situation The present global crisis UK and downturn in the European market is affecting many of the businesses. The inflation rate is 3.7% down as compared to last year and the increase in unemployment rate of 7.9% changed the spending pattern of the customers. There Irish farming division is currently facing significant challenges. Firm’s incomes and purchasing power are under sustained pressure following a period of very low output prices and tightening of firm credit. As a result the sales and profit margin of the company got affected. Core Competitors Origin Enterprises Plc operates in the General firms and primarily in the crop sector. This analysis compares Origin Enterprises Plc with three other companies namely Greencore Group plc (2012 sales of 855.95 million Euro [US$1.14 billion]), Glanbia PLC (2011 sales: 1.83 billion Euro [US$2.44 billion] of which 56% was Dairy Ireland), and Nutreco N.V. which is based in the Netherlands (2011 sales of 4.51 billion Euro [US$6.02 billion] of which 25% was Fish Feed).It is notable that all of these companies do not have the same fiscal year. The most recent data for each company are being used. Profitability According to the Interims Results on 31st Jan 2012, the company reported 1.34 billion Euro sales in 2011 including the cost of goods sold total amounting to 1.16 billion Euro, or 86.7% of sales (i.e., the gross profit was 13.3% of sales). The gross profit edge is slightly enhanced than what the company attained in 2010, while the cost of total goods sold was 87.4% in 2010. The gross margin was the highest of the previous five years which was 11.7% in 2007(Annual Report 2008). In 2011, the sales revenue of the company increased from 11.5 % to 36.0 %. The gross profit of Origin Enterprise Plc shows the wide range of variation compared with the other competitors company. The Directors report shows that the EBITDA (earnings before interest, taxes, depreciation and amortization) is 5.4 % on sales. In 2011, the EBITDA was 72.28 million Euros. Due to the gradual increase of EBITDA, the sale to EBITDA ratio increased significantly. Presently, it can be seen that the EBITDA ratio decreased 0.3 % from 2009 to 2011. Although sales at Origin Enterprises Plc had fallen 11.3% in 2011, the company actually increased its selling, general and administrative expenses to 3.10 million Euros (approximately by 3.0%). In 2011, earnings before extraordinary items at Origin Enterprises Plc were 48.04 million Euros, or 3.6% of total sales. In 2011, there was significant improvement in the profit margin compared with that of 2010, when the profit margin was -3.8% of sales. The company's return on equity in 2011 was 33.4%. This was significantly better than the -25.6% return that the company achieved in 2010 (Origin enterprises, 2011, p.33). Current Financial Position Origin Enterprises has reported profit attributable to equity shareholders of €8.92 million, for the first half ended January 31, 2012, compared to €10.23 million for the first half ended January 31, 2011.Revenue for the first half ended January 31, 2012 was €569.07 million, compared to €461.62 million for the first half ended January 31, 2011.Operating profit for the first half ended January 31, 2012 was €20.16 million, compared to €11.63 million for the first half ended January 31, 2011 (Origin enterprises, 2011, p.2). Different Issues of Origin Enterprise Plc (Ethical, Social and Environmental) The company believes in social responsibility and corporate governance and is directly involved in improving environmental business so as to make it environmental friendly. The company follows ethical working methods to safeguard and support their right. The company strictly maintains corporate governance practices as a part of business ethics i.e. the company follows certain process, customs, policies and laws which deals with the stakeholders’ interest. The quality has been maintained by the company on producing organic products to protect human rights. The company provides a number of flexibility to the employee like pick and drop facilities, group medical insurance etc. All the products and beverages of the company are ISO certified which also secure the human rights. Origin Enterprise Plc strictly follows the environmental law of UK. The company go through with sustainable environmental practices for wealth creation. The company uses modern technology which is environment friendly. Corporate Social Responsibility (CSR) is a part of annual agenda of the company. This social issue enhances the goodwill of the company and influences the sales revenue of the company. Origin Plc invested ?323million to protect the pollution in 2011 (Fair environment practices) (Origin enterprises, 2011, p.32). Quantitative Analysis of Key Performance Indicator of Origin Enterprise Plc NAME OF THE COMPANY     KEY FIGURES & RATIO ANALYSIS SPREAD SHEET   Sales 1,507,837 1,337,065 569,073 Cost of Goods Sold 1,326,055 1,165,432 515,500 Gross Profit 181,782 171,633 53,573 Depreciation 7,567 6,525 2,879 Capital Employed 436,629 408,074 378,378 PROFITABILITY RATIOS           Gross Profit Margin 12.06 12.84 9.41         Net Profit Margin (4.01) 2.80 1.76       Return on Capital Employed -14.21 18.01 5.57 CONTROL/LIQUIDITY RATIOS           Credit Given 47.48 48.35 57.21         Credit Taken 76.35 79.60 138.53         Stock Turnover 26.13 25.37 81.57         Current Ratio 1.29 1.25 1.36         Liquid Ratio 0.96 0.94 0.79 GEARING AND SOLVENCY RATIOS           Gross Gearing 1.69 1.03 0.94         Net Gearing 1.07 0.62 0.54 Gearing (Total Liabilities) 592,060 497,837 402,927 Profitability Ratios In 2011, gross profit margin increased by 0.24% as compared to 2010. This is because of the higher sales figures and increase in lower unit volumes as well as lowering of average selling prices. On the other side the net profit margin of the company has increased by 3.23% in 2010 as compared to (3.72%) in 2009.This indicates a recovery from the recession period.1.76% net profit margin in the first half of 2011 was 1.71% in 2010-H1.This increase may be due to more business development through merger and acquisition. The ROCE indicates the growth perspective of Origin Plc. ROCE for the year 2009 was -13.36% which steadily recovered up to 12.58% in 2010. On the first half of 2011 ROCE increases 0.56% as compared to the 2010 H1 ROCE of 5.01%.This indicates a significant positive growth for the company (Origin enterprises, 2011, p.43). Liquidity Ratio Despite of the loss in 2009 and a significant impact of global recession Origin Plc still managed to pay the interest and tax and there is lesser bank borrowings in 2010. But in 2011, as compared to other years current ratio increased which shows that the company is moving to the right direction. On the other side, the ideal liquid ratio for the company is 1:1 which shows the company financial strength. In year 2009 the liquid ratio of the Origin plc is better compared to 0.94 in 2010. In 2011, the quick asset ratio of the company is 0.79, which shows that the company is financially strong and stable also they can sustain in the market for long period. Efficiency Ratios The debtor turnover ratio shows that there is no significant change, the figures has been consistent throughout 2009 and 2010. Even in 2011 the result shows very close difference of just 1.39 days as compared to the first half of the 2010. The main reason behind this is the increase in raw material costs and also deferred customer payments. On the other side, there are significant changes in the credit taken. Number of credits taken was 76 days in 2009 which was increased to 80 days in 2010. This increase in credit days is due to the higher sales figure, increasing net profit margin, and further business development through acquisition and merger in 2011. The stock turnover ratio in 2009 and 2010 had shown a minute difference. But in 2011, the stock turnover significantly increased to 40 days as compared to 2010 result of just 15 days. This increase shows that the increase of sales revenue. This is due to increase in raw materials and products costs. It also indicates the inability of the company to convert its stock into sales in lesser period of time (Origin enterprises, 2011, p.37). Gearing Ratio The Gearing ratio is quite high amounting to 1.69 in 2009 as compared to 1.03 in 2010 because of the agreement with the Austevoll ASA for their respective Irish, UK and Norwegian fishmeal and fish oil operations. This enforced the company to borrow money from shareholder funds and market on interest in 2010. In 2011 company further moved on acquisition of Masstock, full ownership of Odlum foods and also investments in direct farming in Poland and Ukraine caused the company to borrow money from the market. On the other side, the net asset value per share increased from 1.04 in 2009 to 1.31 in 2010. In 2011 the Net Asset Value per share further increased to 1.46 which is reasonably good as compared to 2010 (Origin enterprises, 2011, p.34). Reference Origin enterprises, 2011. Annual report 2011. [pdf] Available at: http://www.originenterprises.ie/pdf/Origin_Annual_Report_201.pdf. [Accessed on March 12, 2013]. Read More