Three Companies Operating within the Australian Energy Sector - Example

COMPANY ANALYSIS: A-CAP RESOURCES, ADX ENERGY & ACACIA COAL LIMITED By Student’s Name Code + Course Name Professor’s Name University Cite, State Date Table of Contents Executive Summary.................................................................................................3 1.0 Introduction............................................................,.............................................4 2.0 Summary of Key Activities.................................................................................4 3.0 Main Issues Affecting These Companies............................................................6 4.0 Significant Accounting Policies..........................................................................7 4.1 Basis of Preparation.................................................................................7 4.2 Statement of Compliance.........................................................................7 4.3 Basis of Preparation ...............................................................................7 4.4 Principles of Consolidation......................................................................8 4.5 Basis of Consolidation..............................................................................8 4.6 Foreign Currency.......................................................................................9 5.0 Horizontal Analysis...............................................................................................9 6.0 Suggestions For Improvements/ Conclusion........................................................10 References List...........................................................................................................12 Appendix.....................................................................................................................13 Executive Summary The report has focused on analysing three companies operating within the Australian energy sector: A-Cap Resources Limited, ADX Energy Limited and Acacia Coal Limited. Considering that most of these companies operate within the same sector, they have adopted similar accounting policies in regards to the basis of preparation as well as basis of consolidation. The horizontal analysis of these companies indicate that they are all faced with challenges pertaining to posting insignificant revenues, which translates to losses as opposed to profits. Thus, it is suggested that they employ newer marketing strategies for their products as well as employ debt financing as a mode of improving on their respective capital structures. 1.0 Introduction The focus of this paper on evaluating three companies listed in the Australian Stock Exchange, operating within the energy sector. These companies include; A-Cap Resources Limited, ADX Energy Limited and Acacia Coal Limited. The Australian energy sector is considered to be one of the most developed that contributes greatly to the economy. The paper examines their annual reports and other related information in order to ascertain on their immediate level of activities, significant accounting policies, and possible issues affecting operations as well as a conducts horizontal analysis as a way of evaluating areas of improvements in regard to the financial performance. 2.0 Summary of Key Activities A-Cap Resources Limited A-Cap operates a substantial number of activities that are positioned in different section of the globe. For instance, it operates the Letlhakane Uranium Project, which is based in Botswana North-South Corridor. The size of this project is placed at 3 million pounds of uranium per annum and it is expected to last for a period of 20 or more years. Subsequently, the firm operates numerous coal projects (A-Cap Resources Limited, 2015). The two strong economic coal projects include; Mea and Balau that are expected to generate between 1 and 2 million tonnes per annum. In fact, the Mea Project is located in Northern section of Botswana positioned at least 5km north of A30 between Francistown and Orapa (A-Cap Resources Limited, 2015). The Balau Coal Project is made up of two significant sub-projects, which are extensions of the Sese Coal Project that contains at least 2.5 billion tonnes of thermal coal. The Letlhakane Coal project is made up of 107Mt of low sulphur and a higher-level ash coals (A-Cap Resources Limited, 2015). ADX Energy Limited The company’s major operations are based in Italy and Tunisia (ADX Energy Limited, 2015). It operates the Kerkouane permit offshore in Tunisia while in Italy, it operates the Pantelleria. In fact, ADX Energy Limited is the sole operator as well as holds 100% level of interest in all permits. These permits allow the firm to explore both oil and gas products in places like Dougga. Recently, the company secured Parta Permit (EX-10) in Romania where it maintains at least 50% of operations in drilling both oil and gas related products (ADX Energy Limited, 2015). The company has just finished an in house G&G studies on the Sicily Channel section, which also includes the newer permit for exploring Italian waters (ADX Energy Limited, 2015). In essence, there has been a two-year extension for the Kerkourane offshore Tunisia permit that was approved by the government hence allowing the company to extend their oil and gas exploration activities. Acacia Coal Limited The company operates such significant projects like the Comet Ridge Project, which is composed of 243 drill holes each constituting about 12,593 meters. It is expected that this project will result to numerous open cut pits in order to generate about 350,000 tonnes per annum of semi-hard coal deposits (Acacia Coal Limited, 2015). It is important to note that the Comet Ridge, which is by far the single most crucial project, was a product of an agreement between Bandanna Energy and Springsure Creek Coal. The recent JORC 2012 Coal Resource Report, Acacia notes of about 57 million tonnes to a significant depth of about 50 meters (Acacia Coal Limited, 2015). Both Triumph and Fair Hill are the most important seams included the Comet Ridge Project. 3.0 Main Issues Affecting These Companies ADX Energy Limited The company is involved in a recent legal proceeding in order to recover about $1.5 million from Gulf-sands. The proceedings emanates from the recent approval of transfer of all AOGs remaining interest within the Chorbane permit in onshore Tunisia to Gulf-sands. The legal mishap was however; resolved between the two companies in order to honour the terms previously formulated within the Settlement Agreement. A-Cap Resource Limited Recently, the company’s management wrote to the Australian Stock Exchange requesting for a trading halt, which was deemed necessary in making announcements to the existing share markets about possible capital raising issues (A-Cap Resources Limited, 2015). The development is set to affect the way operations will be conducted in the future. Acacia Coal Limited The company’s trade agreement with Bandanna Energy is under intense scrutiny by different stakeholders especially the shareholders (Acacia Coal Limited, 2015). The fact that Bandanna Energy was put under voluntary administration is likely to cause a rift between their agreements in operating the Triumph Creek Train Loading. In essence, both the rail loop and Triump Creek Train Loading portrays more than half of its capital expenditures, which are necessary to grow and develop the Comet Ridge Project (Acacia Coal Limited, 2015). Following this line of development, Acacia Coal are put to task to oversee, on a regular basis, the activities of Bandanna Administration in order to eliminate possible risks of jeopardy and operations failure as a whole. 4.0 Significant Accounting Policies ADX Energy Limited 4.1 Basis of Preparation The disclosed annual financial report is depicted as being a GPFR that has been prepared adhering to all stipulations put forward in Corporations Act 2001, pronouncements within the AASB as well as in Australian Accounting Standards (ADX Energy Limited, 2015). Most importantly, the report has employed historical cost accounting basis except for listed equity securities, which are held for trading purposes and have been measured at their immediate fair value (ADX Energy Limited, 2015). In essence, the annual report has been presented in AUD while the functional currency is identified as USD (Exhibit 1). 4.2 Statement of Compliance As can be noted in Exhibit 1, the annual financial report has complied with the Australian Accounting Standards as well as the International Financial Reporting Standards (IFRS). A-Cap Resource Limited 4.3 Basis of Preparation As can be seen in Exhibit 2, the company identifies the reports as being GPFRs, which have also been prepared in accordance with the AAS, Corporations Act 2001 and pronouncements within the AASB. It also means that the firm has adhered to the stipulations set forth within the International Financial Reporting Standards. In consequent, the financial statements have been prepared on accrual basis while based on historical cost accounting. Measurements are conducted using the fair value approach for all non-current, financial assets and liabilities. 4.4 Principles of Consolidation The group’s financial statements include assets and liabilities of all of its immediate subsidiaries of A-Cap Resource Limited. Subsidiaries are all operational entities for which the Consolidated Group has substantial level of control over. Consolidation occurs immediately after the date of which control is transferred while de-consolidation happens when control ceases altogether. It is noted that the intercompany level of transactions, balances as well as unrealised gains on any transactions that occurs between these entities in the consolidated group are eliminated. The acquisition of subsidiaries are accounted for using the acquisition method of accounting while any possible changes in relation to ownership interest conducted without loss of control is deemed an equity transaction(Exhibit 2). The non-controlling interest present within the results as well as the equity of subsidiaries are portrayed using the statement of profit or loss as well as other comprehensive income as losses posted by the entire Consolidated Group are associated with the non-controlling interest in full. In cases where the Consolidated Group fails to enjoy control over a given subsidiary, it is forced to derecognise all assets that include goodwill, liabilities as well as other non-controlling interests within the subsidiary. Acacia Coal Limited 4.5 Basis of Consolidation The company identifies subsidiaries as being entities under the Group’s control. Notably, the financial statements of subsidiaries are integrated within the entire consolidated financial statements from the immediate date that control starts till the time it stops. In essence, the accounting policies of subsidiaries have all been aligned with those belonging to the entire Group. In case of loss of control, the Group sets to derecognise the assets as well as the liabilities of the subsidiary and other related items of equity that relate to it (Exhibit 3). Certain intra-group balances and transactions as well as other unrealised income as well as expenses that emanate are always eliminated in the course of preparing the consolidated financial statements. 4.6 Foreign Currency All Group transactions conducted in foreign currencies are thereby translated into their respective functional currencies of Group Entities at the exchange rates within the date of the transactions. Markedly, monetary assets and liabilities that are denominated in foreign currencies at the immediate reporting dates are always retranslated into their functional currencies at exchange rate dates. Non-monetary assets and liabilities, which have been denominated in their respective foreign currencies are measured at their immediate fair values and retranslated to their respective functional currency. All assets and liabilities belonging to foreign operations are always translated to Australian dollars at their respective exchange rates within the reporting dates. Notwithstanding, the foreign currency differences are certainly recognised using other comprehensive income, which is depicted using foreign currency translation reserve in equity (Exhibit 3). 5.0 Horizontal Analysis A-Cap Resources Limited As it can be seen from the Exhibit 4, the company’s level of sales increases in the five-year period from a low of -13% to 0.84% in 2010 and 2014 respectively. The increase is mainly attributed to null costs of sales within these periods. However, the EBIT decreases significantly within the five year period due to increased level of expenses. The decrease is also perceived in the level of net profits after tax. Notwithstanding, there are also decreases witnessed in both the levels of depreciation expense as well as intangibles impairments over these periods. ADX Energy Limited The company’s sales level decreases tremendously within the five year period. The decrease in the level of sales is attributed to the falling prices of energy related products in the global market. In consequence, the level of earnings before interest and taxes has also decreased within these periods intensively. The fall in EBIT amounts is attributed to the respective level of decrease in the sales revenues within the same period. The net profit after tax also decreases between these periods to significant levels. The decrease is also attributed to the decreased level of sales revenues. The company’s level of intangible impairments increases within the period triggering a decrease in the level of EBIT (Exhibit 5). Acacia Coal Limited The company’s sales revenues decreases within the five-year period due to falling prices in energy related products. The costs of sales however increase within the same period prompting a substantial decrease in the level of EBIT and net profit after taxes. The value of interest expenses has also increased over this period resulting to decreased profits and null dividends being offered. Most importantly, the amounts of depreciation expense as well as intangibles impairment increase within this period leading to a significant contraction of the overall profit levels (Exhibit 6). 6.0 Suggestions For Improvements/ Conclusion From the analysis conducted above, it can almost be ascertained that the energy-industry sector has continued to face lots of challenges in regards to the prices of energy-related products and minerals. This has prompted a significant level of decrease in sales revenues as well as EBIT and NPAT within the same period. In fact, the inability to post significant level of profits has ensured that the industry has not provided dividends to its existing shareholders. Notwithstanding, there seems to be a lacking of borrowed loans by all these companies probably because revenues posted cannot guarantee future interest payable. Following this line of reasoning, it is suggested that the companies embark on employing debt funds into new projects in order to strike a balance between the level of equity and debt financing. Furthermore, these companies should devise other effective and efficient marketing strategies like discount pricing as well as conducting intensive market campaigns to attract a substantial level of customers that will prompt increase sales revenues in the future. References List A-Cap Resources Limited. 2015. 2010-2014 annual reports. Retrieved from http://acap.com.au/investor-relations/financials/ Acacia Coal Limited. 2015. 2010-2014 annual reports. Retrieved from http://www.acaciacoal.com/investor.html ADX Energy Limited. 2015. 2010-2014 annual reports. Retrieved from http://adx-energy.com/en/investors/annual-reports.php Appendix Exhibit 1 Exhibit 2 Exhibit 3 Exhibit 4 A-CAP Resources Limited Items 2010 2011 2012 2013 2014 Sales 329081 -13.021554 -0.23816 1 0.848943 Cost Of Sales 0 0 0 0 0 EBIT -1697470 3.2023064 3.3541753 2.2901642 2 Interest Expense 0 0 0 0 0 NPAT -1697470 3.4737869 3.3541753 2.2901642 2.2640047 Dividends 0 0 0 0 0 Retained Earnings 0 0 0 0 0 Depreciation Expense -37235 1.9155633 2.7146233 1 1 Intangibles Impairment -13873 4 9.4315577 2.7114539 1 Exhibit 5 ADX Energy Limited Items 2010 2011 2012 2013 2014 Sales 62 -64 0.451613 -15332.5 -27573.3 Cost of Sales 0 0 0 0 0 EBIT -2141 3.726296 7.130313 3081.795 301.1481 Interest Expense 0 0 0 0 0 NPAT -2141 3.726296 7.138253 3085.528 287.2704 Dividends 0 0 0 0 0 Retained Profits 0 0 0 0 0 Depreciation Expense 0 0 0 0 0 Intangibles Impairment 944 -6.56462 -8.28814 -4922.4 1 Exhibit 6 Acacia Coal Limited Items 2010 2011 2012 2013 2014 Sales 904904 -0.54854659 0.62025254 0.642116 0.4608975 Cost of Sales 671526 -7.38086388 1 1 1 EBIT 812573 1.165693421 4.05798125 2.244522 8.5850194 Interest Expense 1411 -15.4932672 1 1 1 NPAT 812573 1.165693421 4.05798125 2 8.5850194 Dividends 0 0 0 0 0 Retained Profits 0 0 0 0 0 Depreciation Expense 55820 0.796309566 0.62121104 1.417198 1.364708 Intangibles Impairment 662977 0.904230464 1 1 1 Read More