Contemporary Corporate Reporting - Rexam Plc - Example

REXAM PLC] Part A Introduction The global beverage industry is composed of beverage manufacturers and subsidiary firms such as can manufacturers and bottling companies. Rexam PLC is among the leading, global manufacturers of beverage cans. The company ensures that it brings factors such as efficiency, profitability and sustainability into play to enable its clients to attract and retain consumers of their beverages. The company’s vision is to top the world in can making, an aspect that requires investing for value. Therefore, Rexam PLC focuses on investment for growth, through acquisitions, to earn good returns and continue creating value for shareholders. The company targets a 15% ROCE in every financial year (Rexam PLC, 2015). Rexam PLC’s strategy is to target emerging markets, with investments in plants in various parts of the world. Therefore, the company seeks to consolidate its presence in a large number of selected growth markets by providing high-quality service and reliability through innovation (Rexam PLC, 2015). The market for beverage cans records an annual growth of about 3%. Rexam competes with Ball and Crown in the manufacture of beverage cans. It leads in South America and Europe, while it takes the second position in United States (Rexam PLC, 2015). The company manufactures and sells cans to top beverage manufacturing companies like Arizona, Red Bull, Coca-Cola, Heineken and Pepsi. Currently, Rexam PLC operates in more than 20 countries, with about 55 plants. Factors like barriers to entry limit other organisations from venturing into the manufacture of beverage cans. Major can manufacturers benefit from scale economies, given that flight costs are significant in this industry. Rexam benefits from its optimised network of plants. Consequently, Rexam PLC continues to lead in the industry in terms of market share, revenue and creation shareholder value. 2. Limitations It should be noted that this analysis is a product of the financial information provided in the annual reports of Rexam PLC. No secondary sources have been used to ascertain the trustworthiness of this information through comparison. Given that some firms conceal crucial data about their financial performance from their rivals, an analysis that is based on the company’s financial report only is subject to limitations of representing the true and fair value of such a company. The aforementioned limitation has been overcome by reviewing the independent auditor’s report that is provided alongside the annual report. The auditors, PricewaterhouseCoopers LLP, have ascertained that the financial statements give a true and fair value of Rexam PLC Group’s affairs in terms of profit and cash flows. According to the auditors, the financial statements have also been prepared in accordance with the required standards and law. With this assurance from the independent auditors, the findings and recommendations made in this analysis are valid and reliable. In addition, the company’s income statement does not indicate the cost incurred by Rexam PLC in producing cans. Therefore, it is impossible to calculate the gross profit of the company. Consequently, the analysis may have to rely only on a single profitability measure, operating profit margin. However, this limitation has been overcome by consideration of a third profitability measure, the net profit margin. 3. Profitability Rexam PLC’s sales recorded a significant increase in each successive year, beginning 2009 through 2013. Each subsequent year, the company recorded an increase of sales that exceeded £50 (See Table 1). This increase was recorded because the company seeks to achieve its objective of targeting emerging markets by investing in plants. Rexam also seeks to consolidate its presence in a large number of selected growth markets by providing high-quality service and reliability through innovation. Consequently, the increase in the number of plants by Rexam led to an increase in sales since it was possible to reach additional clients. The company’s efforts to manufacture cans profitably led to a decrease in operating expenses, compared to sales. This led to an increase in operating profit earned by Rexam PLC in each subsequent year. As for the net profit, the company increased during the first three years and then decreased in 2012 and 2013 due to an increase in the loss incurred from discontinued operations. Table 1: Profitability-Rexam PLC 2013 2012 2011 2010 2009 Sales (£m) 3,943 3,885 3,786 3,664 3,573 Operating Profit (£m) 449 448 427 367 286 Net Profit (£m) 95 206 367 113 (38) Operating Profit Margin 11.4% 11.5% 11.3% 10.0% 8.0% Net Profit Margin 2.4% 5.3% 9.7% 3.1% (1.1%) Source: (Rexam PLC, 2015) The operating profit margin of Rexam PLC generally increased during each subsequent year (See Chart 1). However, there was a slight decrease of 0.1% in the operating profit margin of Rexam PLC in 2013, compared to 2012. This decrease was exhibited because the increase in the company’s operating expenses was more than proportionate to the increase in the company’s sales. Despite a remarkable increase in the company’s net profit margin during the first three years, Rexam recorded a decreasing trend in 2012 and 2013 due to a decrease in the profit from continuing operations and a significant increase in the loss from discontinued operations. The significant decrease in Rexam PLC’s net profit margin in 2012 can be attributed to financial difficulties that forced the company to sell part of its operations. Chart 1: Profitability-Rexam PLC Source: (Rexam PLC, 2015) 4. Liquidity The company does not exhibit a sequential trend in terms of current assets and liabilities over the years. For instance, there was an increase in the value of current assets owned by Rexam PLC since 2009 to 2012. However, 2013, recorded a significant decrease in this value. Similarly, liabilities exhibited the same trend, whereby they increased, beginning 2009 to 2012 and then they decreased drastically in 2013. The company’s debt decreased generally over time while there was no particular trend exhibited in its equity. As per the trend exhibited in chart 2, Rexam PLC’s liquidity increased over time. The reason for this is the company’s efforts to increase its assets while reducing its liabilities. The company also sought to decrease its debt in relation to equity. Consequently, Rexam PLC has managed to reduce its gearing level by not using much of debt finance in investing. The company is therefore, not highly leveraged. It is liquidity level is acceptable. Chart 2: Liquidity-Rexam PLC Source: (Rexam PLC, 2015) 5. Efficiency Rexam recorded a steady increase in its operating profit over the years. As indicated earlier, the company’s debt has been decreasing over the years. Rexam recorded a significant increase in its revenue during each subsequent year since it implemented its strategy of targeting emerging markets in the beverage can industry successfully. The value of Rexam PLC’s non current assets decreased. The reason for this decrease might have been the disposal of some of the company’s operations and assets in certain regions. The rate of asset turnover increased because the company’s sales increased more than proportionate to the increase in the company’s non current assets (Chart 3). Similarly, the company’s ROCE exhibited a steady and positive trend, where the company’s debt decreased over time, while equity increased less proportionate to the increase in the company’s operating profit. Chart 3: Efficiency-Rexam PLC Source: (Rexam PLC, 2015) 6. Investor Analysis Generally, the amount of dividend paid by Rexam PLC decreased over the five years under analysis. This could be as a result of the reduction in the amount of net profit that was attributed to shareholders after deduction of expenses. However, the amount of dividends per share that each shareholder of Rexam PLC earned increased significantly over years. Similarly, the share price of the company increased in each year. Consequently, earnings per share increased after every year (Chart 4). The reason for this trend could be the company’s strategy of ensuring value for shareholders, seeking a 15% return on capital employed for every financial year. Chart 4: Investor Analysis-Rexam PLC Source: (Rexam PLC, 2015) 7. Conclusion and Recommendation In view of the analyses and findings above, it is notable that Rexam is a profitable firm despite the few hurdles it has had to cope with from time to time. The firm implemented its strategies effectively to achieve its goals and seeks to achieve more. In addition, the company has managed to decrease its reliability on debt financing. Given the positive trend exhibited in dividends per share, earnings per share and dividend yield, I would strongly recommend any investor to invest in Rexam PLC because a positive return is guaranteed. The company enjoys benefits that accrue from its strategic global positioning, profitability and commendable investor relations. In addition, the firm has a strong backing from corporate players which makes it ideal. Part B Communication is essential for a company because, it enables management to pass crucial parties and stakeholders of the company (Cornelissen, 2004). These stakeholders include internal people such as employees and other senior staff, as well as external stakeholders such as investors, creditors and shareholders (Epstein & Rejc, 2014). Companies employ various communication strategies to achieve the ultimate goal of communicating their strategies, performance and corporate policies effectively. Communication has to be done in consideration of readers who may find some of the information provided by the company critical to understand (Griff, 2014). For instance, external communications strategies enable a company to send messages to the outside world about the organisation’s product or service offering. These include; positioning, competitive differentiators and financial performance (Aamodt, 2010, p. 405). Internal communications strategy is about keeping employees informed on strategies, policies and practices of the company. It is also a requirement that companies engage in timely and accurate disclosure of relevant information pertaining to a company’s ownership, governance, financial situation and performance (Tricker & Tricker, 2012, p. 95). There has to be transparency by employing accurate accounting methods. According to Weetman (2011), it is imperative that those interested in understanding a company’s financial performance should have a basic understanding of the accounting equation. Other items included in the annual report of a company are also of significance (Maynard, 2013, p. 664; Porter & Norton, 2008, p. 82). In consideration of the aforementioned strategies, Rexam PLC has employed various tactics in communicating its strategies, performance and corporate policies. These strategies, performance and corporate policies may be critical to some of the readers’ understanding of Rexam PLC. First, the company has employed an external communication strategy by communicating to external stakeholders through its website. The “about us” icon provides information about what the company does and its prospects. Under this section, the mission, vision and strategies of the company are specified. In addition, this section provides information about how the company seeks to achieve its strategy. For instance, Rexam PLC has a strategy to target emerging markets, with investments in plants in various parts of the world. The company communicates how it intends to consolidate its presence in a large number of selected growth markets by providing high-quality service and reliability through innovation to implement its strategy (Rexam PLC, 2015). Rexam PLC, through the chairman’s statement, provides a summary of the financial position of the company, which is easily understood by any reader. For instance, information about effective management of costs through minimisation, optimization of cash and ROCE improvement has been highlighted. It has been indicated that the company targeted to obtain ROCE of at least 15% by the end of 2013. The chairman’s statement provides quality information (Stittle, 2003, p. 82). The achievements have been attributed to efficient leadership and resilience. Plans of the company are stipulated in the chairman’s statement, while there is an indication of where a reader can obtain additional information. The company’s plans include; balancing of growth and returns. The chairman’s statement also provides information about the contents of the annual report, which includes financial and non-financial information. Compliance to corporate governance requirements is also provided. Succinct information pertaining to remuneration principles and returns to shareholders is provided the section of the chairman’s statement of the annual report of Rexam PLC (Rexam PLC, 2014, p. 3). Notes to the financial statements are very crucial in communicating the financial performance to readers because they are largely descriptive (Friedlob & Welton, 2008, p. 18). Readers and other users who do not have basic accounting skills to understand the presented financial statements may rely on these notes because they offer simplified, additional information that is relevant. For instance, the 2013 annual report of Rexam PLC provides comprehensive notes that explain the figures and values indicated in the financial statements, with elaborative calculations, figures and charts. It has been established that it is imperative that organisations have to adopt effective and efficient corporate communication strategies to portray a superior impression about a company’s management. Therefore, the analysis has shown that Rexam PLC communicates its strategies, performance and corporate policies, which can be critical to a reader effectively by use of the chairman’s statement and notes to the financial statements. These strategies have proved extremely useful, effective and reliable in presenting both the financial and non-financial content of Rexam PLC’s corporate report. Appendices 1. Rexam PLC Consolidated Income Statement For the Year Ended 31 December, 2013 £m Sales 3,943 Underlying operating expenses (3,494) Underlying operating profit 449 Underlying share of post tax profits of associates and joint ventures 9 Retirement benefit obligations net interest cost (16) Underlying net interest expense (70) Underlying profit before tax 372 Exceptional and other items (33) Profit before tax 339 Tax (86) Profit for the financial year from continuing operations 253 Discontinued operations   (Loss)/profit for the financial year from discontinued operations (158) Total profit/(loss) for the financial year 95 Source: (Rexam PLC, 2014) 2. Statement of Financial Position In 2013, Rexam PLC, in summary, performed slightly below the management’s initial target in terms of trading. The company’s total assets were £4,391m, while the total underlying operating profit was £513m. Total underlying profit before tax was £434m, wheras total underlying earnings per share was 40.6p (Rexam PLC, 2014). 3. Rexam PLC Consolidated Cash Flow Statement For the Year Ended 31 December, 2013 £m Cash flows from operating activities Cash generated from operation 564 Interest paid (78) Tax paid (77) Net cash flows from operating activities 409 Cash flows from investing activities Capital expenditure (232) Proceeds from sale of property, plant and equipment 1 Disposal of businesses (23) Pension escrow investment payments (15) Interest received 7 Net cash flows from investing activities (262) Cash flows from financing activities Proceeds from borrowings 349 Repayment of borrowings (1,050) Return of cash to shareholders (393) Proceeds from issues of share capital on exercise of share options 6 Purchase of Rexam PLC shares by Employee Share Trust (23) Dividends paid to equity shares (125) Other financing items 14 Net cash flows from financing activities (1,222) Net decrease/increase in cash and cash equivalents (1,075) Cash and cash equivalents at the beginning of the year 1,249 Exchange differences 17 Net decrease/increase in cash and cash equivalents (1,075) Cash and cash equivalents at the end of the year 191 Cash and Cash equivalents comprise: Cash at bank and cash in hand 66 Start term bank and money market deposits 145 Bank overdrafts (20) 191 Source: (Rexam PLC, 2014) 4. Calculation of Profitability Ratios 2013 2012 2011 2010 2009 Sales (£m) 3,943 3,885 3,786 3,664 3,573 Operating Profit (£m) 449 448 427 367 286 Net Profit (£m) 95 206 367 113 (38) Operating Profit Margin (Operating Profit/Sales) 449 3,943 = 11.4% 448 3,885 = 11.5% 427 3,786 = 11.3% 367 3,664 = 10.0% 286 3,573 = 8.0% Net Profit Margin (Net Profit/Sales) 95 3,943 = 2.4% 206 3,885 =5.3% 367 3,786 = 9.7% 113 3,664 = 3.1% (38) 3,573 = (1.1%) Source: (Rexam PLC, 2015) 4. Calculation of Liquidity Ratios 2013 2012 2011 2010 2009 Current Assets (£m) 1,878 2,364 1,596 1,248 1,242 Current Liabilities (£m) 1,231 2,021 1,026 968 982 Current Ratio (Current Assets/ Current Liabilities) 1,878 1,231 = 1.53 2,364 2,021 = 1.17 1,596 1,026 = 1.56 1,248 968 = 1.29 1,242 982 = 1.26 Debt (£m) 1,171 781 1,312 1,684 1,828 Equity (£m) 1,869 2,287 2,319 2,325 2,322 Gearing (Debt/Equity) 1,171 1,869 = 0.63 781 2,287 = 0.34 1,312 2,319 = 0.57 1,684 2,325 = 0.72 1,828 2,322 = 0.79 Source: (Rexam PLC, 2015) 5. Calculation of Efficiency Ratios 2013 2012 2011 2010 2009 Operating Profit 449 448 427 367 286 Debt 1,171 781 1,312 1,684 1,828 Equity 1,869 2,287 2,319 2,325 2,322 Debt + Equity 3,040 3,068 3,631 4,009 4,150 Revenue or Sales 3,943 3,885 3,786 3,664 3,573 Non Current Assets 3,261 3,999 4,526 4,537 4,835 ROCE [Operating Profit/(Debt + Equity)] 449 3,040 =0.15 448 3,068 =0.15 427 3,631 =0.12 367 4,009 =0.09 286 4,150 =0.07 Asset Turnover (Sales/Non-Current Assets) 3,943 3,261 =1.2 3,885 3,999 =0.9 3,786 4,526 =0.8 3,664 4,537 =0.8 3,573 4,835 =0.7 Source: (Rexam PLC, 2015) 6. Calculation of Investor Analysis Ratios 2013 2012 2011 2010 2009 Net Profit (£m) 95 206 367 113 (38) Number of Shares 3,354 6,428 10,056 2,306 2,306 Dividend Paid (£m) 1,869 2,287 2,319 2,325 2,322 Dividends per Share (pence) 17.4 15.2 14.4 12.0 8.0 Share Price (£m) 468 436 353 333 290 Earnings per Share (pence) [Net Profit/Number of Shares] 35.3 31.2 27.4 20.4 12.2 Dividend Cover (pence) [Net Profit/Dividend Paid] 95 1,869 =0.05 206 2,287 = 0.09 367 2,319 = 0.16 113 2,325 =0.05 (38) 2,322 = 0.02 Dividend Yield (pence) [Dividend per Share/Share Price] 17.4 35.3 =0.49 15.2 31.2 =0.49 14.4 27.4 =0.53 12.0 20.4 =0.60 8.0 12.2 =0.66 Price Earnings Ratio [Share Price/Earnings per Share] 468 35.3 =13.3 436 31.2 =14.0 353 27.4 =12.9 333 20.4 =16.3 290 12.2 =23.8 Source: (Rexam PLC, 2015) References Aamodt, M., 2010. Industrial/Organizational Psychology. Belmont: Wadsworth Press. Cornelissen, J., 2004. Corporate Communications: Theory and Practice. London: SAGE Publications. Epstein, M. J., and Rejc, A., 2014. Making Sustainability Work: Best Practices in Managing and Measuring Organisational Performance. San Francisco: Berrett-Koehler Publishers, Inc. Friedlob, G. T., and Welton, R. E., 2008. Keys to Reading an Annual Report. Hauppauge: Barrons Educational Series Press. Griff, M., 2014. Professional Accounting Essays and Assignments. London: Miracel Griff Press. Maynard, J., 2013. Financial Accounting, Reporting, and Analysis. Oxford: Oxford University Press. Porter, G., and Norton, C., 2008. Financial Accounting: The Impact on Decision Makers. New York: Cengage Learning Press. Rexam PLC., 2014. Rexam Annual Report 2013. [Online] Available at: [Accessed 4 January 2015]. Rexam PLC., 2015. About Us. [Online] Available at: https://www.rexam.com/index.asp?pageid=604 [Accessed 4 January 2015]. Rexam PLC., 2015. Five YearFinancial Summary. [Online] Available at: http://www.rexam.com/index.asp?pageid=462 [Accessed 4 January 2015]. Rexam PLC., 2015. Our Products. [Online] Available at:[Accessed 4 January 2015]. Rexam PLC., 2015. What is our Strategy. [Online] Available at: http://www.rexam.com/files/reports/2006ar/index.asp?pageid=17 [Accessed 4 January 2015]. Stittle, J., 2003. Annual Reports: Delivering Your Corporate Message to Stakeholders. Burlington: Gower Publications. Tricker, B., and Tricker, R. I., 2012. Corporate Governance: Principles, Policies and Practices. Oxford: Oxford University Press. Weetman, P., 2011. Financial Accounting: An Introduction. Harlow: Prentice Hall Press. Read More