Accounting Report ( Final )
- 1. 1 SCHOOL OF ARCHITECTURE, BUILDING AND DESIGN FOUNDATION IN NATURAL BUILD ENVIRONMENT AUGUST 2014 MODULE: BASIC ACCOUNTING Lecturer/ Tutor : Mr. Chang Jau Ho Submission Date : 4th of June 2015 GROUP MEMBERS: Names Student ID Deong Khai Keat 0320055 Boon Yi Chung 0318300 Chan Tian Ji 0320831
- 2. 2 Content Content Page BACKGROUND OF FONTERRA CORPORATION 3 RECENT DEVELOPMENT 4 PROFITABILITY RATIO 5 - 6 STABILITY RATIO 7 - 8 PRICE & EARNING RATIO 9 INVESTMENT RECOMMENDATION 10 APPENDIX 11 - 17 REFERENCES 18
- 3. 3 Background of Fonterra Corporation Fonterra is a global and co-operatively company in the world. Fonterra was started by a bunch of farmer shareholder which decided to build up a co-operative to be a world leader in New Zealand over the 140 years. They supply fresh milk to different country all over the world .Every year Fonterra will collect 22 billion liters of milk and supply it out of the country. They stand together and focus on the quality of milk supplied. Fonterra have 16,000 passionate in New Zealand helping out the farmer so the milk supplied is enough for people from 140 countries. With the strong team Fonterra had, they produce 2 million tones of milk every day. New Zealand’s dairy industry started in the year 1814. The earlier European settlers imported the first cattle into New Zealand. The first export began just six year after the Treaty of Waitangi signed. The first co-operative was created in Otago in 1871.Refrigeration opened new markets to New Zealand’s agriculture industry as the United Kingdom becoming the largest export market for dairy until 1970s. Slowly many different products were exported to the world market. Fonterra was formed in the year 2001 to represent 95% of New Zealand’s dairy farmer, the shareholder. Fonterra supply not only milk but also other product such as food. Fonterra supply their products to many countries such as New Zealand, Australia, China, Asia, North America, Europe, Middle East and Africa and also Latin America. Fonterra have 3 famous brands which is Anchor, Anmum and Anlene. Fonterra also supply different type of food such as cheese, butter, yogurt and so on. The farmgate milk price is around $4.40 to $5.40 .
- 4. 4 Recent Development Over the years, Fonterra had started and changed from just producing milk to producing food that have milk as the ingredients. They started to produce more and more milk nowadays and their selling had reached 15.7 billion a years. The business started with a bunch of farmer and now there are 16,000 people all around the world are helping out. Recently, Fonterra had set fixed base milk price at $ 5.54 per kilogram of milk solid on the 22th of May 2015. On the 27th of May 2015, Fonterra also announced that Sir Ralph Norris which is the Independent Director of Fonterra had resigned because of his other commitment. Fonterra also revised forecast farm gate milk price for 2014/2015 and announce forecast for 2015/2016. Fonterra had reduced its forecast farm gate milk price to $ 4.40 per kgMS. So, the Co-operative also announce the forecast farm gate milk price which is $ 5.25 per kgMS. So, following the announcement of the forecast farm gate milk price, applications are now open for Fonterra to farmer to lock in a Guaranteed Milk Price(GMP) for a percentage of their milk on the 2nd of June 2015. The applications runs until 5 pm of 19th of June. Once the applications closed, the total kgMs offered by the applicants will be total up.
- 5. 5 Profitability Ratios FORMULA 2013 2014 Return on Equity (ROE) X 100% x 100% = 4% x 100% = 5.5% Net Profit Margin (NPM) X 100% x 100% = 1.44% x 100% = 1.64% Gross Profit Margin (GPM) X 100% x 100% = 16.26% x 100% = 11.05% Selling Exp. Ratio (SER) X 100% x 100% = 7.44% x 100% = 6.08% General Exp. Ratio (GER) X 100% x 100% = 2.76% x 100% = 2.24% Financial Exp. Ratio (FER) X100% x 100% = 1.9% x 100% = 1.6%
- 6. 6 Interpretation of Profitability Ratios • Return on Equity Over the 2013 to 2014 period, the business’s ROE has increased from 4% to 5.5%. The owner is getting more return from the capital. • Net Profit Margin During the year 2013 to 2014, the Net Profit Margin has increased from 1.44% to 1.64%. The business is getting better at it overall expenses last year. • Gross Profit Margin During the year 2013 to 2014, the Gross Profit Margin has decreased from 16.26% to 11.05%.The business ability to control its COGS expenses is getting worst. • Selling Expenses Ratio During the year 2013 to 2014, the SER has decreased from 7.45% to 6.08%. The business ability to control its Selling expenses is better than last year. • General Expenses Ratio During the year 2013 to 2014, the GER has decreased from 2.76% to 2.24%. The business ability to control its General expenses is better than last year. • Financial Expenses Ratio During the year 2013 to 2014, the FER has decreased from 1.9% to 1.6%. The business ability to control its Financial expenses is better than last year.
- 7. 7 Stability Ratios FORMULA 2013 2014 Working Capital . = 1.38 : 1 = 1.26 : 1 Total Debt x 100% = 5.31% x 100% = 57.9% Stock Turnover 365days x 365 / = 70.8 Days 365 / = 62.4 Days Interest Coverage . = 0 = 0
- 8. 8 Interpretation of Stability Ratios • Working Capital Over the 2013 to 2014 period, the business’s Working Capital has decreased from 1.38 : 1 to 1.26 : 1. • Total Debt During the year 2013 to 2014, the business Total Debt has increased from 5.31% to 57.9%. The total debt of business has increased. • Stock Turnover During the year 2013 to 2014, the business stock turnover has decreased from 70.8days to 62.4days. The business sell its good faster compared to last year. • Interest Coverage During the year 2013 to 2014, the business interest coverage is still the same.
- 9. 9 Price & Earning Ratio 2013 P & E Ratio = Market Value per Share / Earnings per Share (EPS) = 32 cents / 44 cents = 0.7273 : 1 2014 P & E Ratio = Market Value per Share / Earnings per Share (EPS) = 10 cents / 10 cents = 1 : 1 Investment Recommendation According to the data that we had researched and analyzed, it shows that Fonterra Cooperating Company is
- 10. 10 a company that are worth to be invest. From 2013 to 2014, this company gaining more profit every year. By comparing every of the data that we analyze, shows clearly that this company can consider as a least percentage risk investment company. Its profitability ratios are all positive which means that the profits gained are also positive too. Fonterra is a company that mainly produce milk powder for child and elderly as mentioned on the statement above. Report of the population for every country are increasing as the babies produced are increasing nowadays. This is a benefits for Fonterra, because the products produced will be increasing as the population of babies are increasing. This happen same to the elderly. Every elder that suffer from diseases such as diabetes, high blood pressure needs the suitable milk powder. When the sales become higher, the share will also increases as the result shows this company is earning profit. Moreover, the stability ratios also show that Fonterra is a well managed company. As the years move on, this company is also becoming more and more stable. As for every stable company, the investment applied will also be safer compare to unstable company. Therefore, to make an investment in Fonterra in 2015 is a good choice referring to its development of in 2013 to 2014. My recommend for investor is to make a small investment at the beginning of their investment instead from putting all effort on it. This is to prevent the risk of failure in investment because nobody knows what will happen in the next second. Appendix INCOME STATEMENT FOR THE YEAR ENDED 31 JULY 2014 GROUP $ MILLION Revenue from sale of goods 22,275 18,643 Dividends received – – Total revenue 22,275 18,643 Cost of goods sold 1 (19,813) (15,611) Gross profit 2,462 3,032 Other operating income 139 105 Selling and marketing expenses (593) (622) Distribution expenses (499) (514)
- 11. 11 Administrative expenses (762) (766) Other operating expenses (356) (354) Net foreign exchange gains/(losses) 3 39 (7) Share of profit of equity accounted investees 11 73 63 Profit before net finance costs and tax 2 503 937 Finance income 4 13 25 Finance costs 4 (379) (294) Net finance (costs)/income (366) (269) Profit before tax 137 668 Tax credit 5 42 68 Profit after tax 179 736 Profit after tax is attributable to: Equity holders of the Parent 157 718 Non-controlling interests 22 18 Profit after tax 179 736
- 12. 12 STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 JULY 2014 GROUP $ MILLION 31 JULY 2014 31 JULY 2013 Profit after tax 179 736 Items that may be reclassified subsequently to profit or loss: Cash flow hedges: – Net fair value gains 732 116 – Transferred and reported in revenue from sale of goods (505) (317) – Tax (expense)/credit on cash flow hedges (63) 56 Net investment hedges: – Net fair value gains/(losses) on hedging instruments 25 (5) – Tax (expense)/credit on net investment hedges (7) 2 Available-for-sale investments: – Net fair value losses on available-for-sale investments (1) – Foreign currency translation losses attributable to equity holders (207) (45) Foreign currency translation reserve transferred to income statement – (7) Share of equity accounted investees’ movements in reserves (11) (1) Total items that may be reclassified subsequently to profit or loss (37) (201) Items that will not be reclassified subsequently to profit or loss: Foreign currency translation (losses)/gains attributable to non- controlling interests (4) 1 Total items that will not be reclassified subsequently to profit or loss (4) 1 Total other comprehensive (expense)/income recognised directly in equity (41) (200) Total comprehensive income 138 536 Total comprehensive income is attributable to: Equity holders of the Parent 120 517 Non-controlling interests 18 19 Earnings per share: Basic and diluted earnings per share 24 0.10 0.44
- 13. 13 Total comprehensive income 138 536 STATEMENT OF FINANCIAL POSITION AS AT 31 JULY 2014 GROUP $ MILLION NOTES 31 JULY 2014 31 JULY ASSETS Current assets Cash and cash equivalents 340 330 Trade and other receivables 8 1,950 2,054 Inventories 9 3,701 3,078 Tax receivable 20 26 Derivative financial instruments 303 100 Assets held for sale 58 – Other current assets 112 58 Total current assets 6,484 5,646 Non-current assets Property, plant and equipment 10 5,091 4,807 Investment in subsidiaries – – Equity accounted investments 11 388 449 Intangible assets 12 2,791 2,858 Deferred tax assets 16 231 217 Available-for-sale investments 74 – Derivative financial instruments 154 127 Other non-current assets 316 269 Total non-current assets 9,045 8,727 Total assets 15,529 14,373 LIABILITIES Current liabilities Bank overdraft 21 1 Borrowings 15 1,534 1,569 Trade and other payables 13 1,638 1,491 Owing to suppliers 1,771 711 Tax payable 18 23 Derivative financial instruments 30 149 Provisions 14 47 82 Other current liabilities 74 52 Total current liabilities 5,133 4,078 Non-current liabilities Borrowings 15 3,364 3,108 Derivative financial instruments 415 346 Provisions 14 65 76 Deferred tax liability 16 5 6 Other non-current liabilities 13 11 Total non-current liabilities 3,862 3,547 Total liabilities 8,995 7,625 Net assets 6,534 6,748 EQUITY Subscribed equity 5,807 5,807 Retained earnings 1,059 1,249 Foreign currency translation reserve (455) (266) Cash flow hedge reserve 82 (82)
- 14. 14 Available-for-sale reserve (1) – Total equity attributable to equity holders of the Parent 6,492 6,708 Non-controlling interests 42 40 Total equity 6,534 6,748 The accompanying notes form part of these financial statements.
- 15. 15 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 JULY 2014 ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT FORE IGN CURREN CY TRANSL CASH FLOW AVAIL ABLE- NO N- As at 1 August 2013 5,807 1,249 (266) (82) – 6,708 40 6,748 Profit after tax – 157 – – – 157 22 179 Other comprehensive – (11) (189) 164 (1) (37) (4) (41) Total comprehensive income/ – 146 (189) 164 (1) 120 18 138 Transactions with equity holders in their capacity as equity holders: Dividend paid to equity holders of – (336) – – – (336) – (336) Dividend paid to non-controlling – – – – – – (16) (16) As at 31 July 2014 5,807 1,059 (455) 82 (1) 6,492 42 6,534 As at 1 August 2012 5,690 1,078 (211) 63 – 6,620 35 6,655 Profit after tax – 718 – – – 718 18 736 Other comprehensive – (1) (55) (145) – (201) 1 (200) Total comprehensive income/ – 717 (55) (145) – 517 19 536 Transactions with equity holders in their capacity as equity holders: Dividend paid to equity holders of – (546) – – – (546) – (546) Equity instruments issued 611 – – – – 611 – 611 Equity instruments cancelled (475) – – – – (475) – (475) Equity instruments surrendered (1) – – – – (1) – (1) Equity transaction costs (18) – – – – (18) – (18) Dividend paid to non-controlling – – – – – – (14) (14) As at 31 July 2013 5,807 1,249 (266) (82) – 6,708 40 6,748 SUBSCRIBED ACCUMUL CASH FLOW As at 1 August 2013 5,807 (900) (60) 4,847 Profit after tax – 167 – 167 Other comprehensive income – – 3 3 Total comprehensive income – 167 3 170 Transactions with equity holders in their capacity as equity holders: Dividend paid to equity holders – (336) – (336) As at 31 July 2014 5,807 (1,069) (57) 4,681 As at 1 August 2012 5,690 (584) (67) 5,039 Profit after tax – 230 – 230 Other comprehensive income – – 7 7 Total comprehensive income – 230 7 237 Transactions with equity holders in their capacity as equity holders: Dividend paid to equity holders – (546) – (546) Equity instruments issued 611 – – 611 Equity instruments cancelled (475) – – (475) Equity instruments surrendered (1) – – (1) Equity transaction costs (18) – – (18) As at 31 July 2013 5,807 (900) (60) 4,847
- 16. 16 CASH FLOW STATEMENT FOR THE YEAR ENDED 31 JULY 2014 GROUP $ MILLION 31 JULY 2014 31 JULY Cash flows from operating activities Profit before net finance costs and tax 503 937 Adjustments for: Foreign exchange losses 11 1 Depreciation and amortisation 538 530 Movement in provisions 132 (17) Other (41) (16) 640 498 (Increase)/decrease in working capital: Trade and other receivables (111) 38 Amounts owing to suppliers 1,060 (410) Payables and accruals 111 68 Other movements (28) (8) Total 275 (355) Cash generated from operations 1,418 1,080 Net taxes paid (51) (83) Net cash flows from operating activities 1,367 997 Cash flows from investing activities Cash was provided from: – Proceeds from sale of Group entities and other business operations 46 5 – Proceeds from disposal of property, plant and equipment 12 22 – Net loans from Group entities – – – Other cash inflows 21 5 Cash was applied to: – Acquisition of Group entities and other business operations (18) (49) – Acquisition of available-for-sale investments (78) – – Acquisition of property, plant and equipment (791) (701) – Acquisition of intangible assets (102) (147) – Net loans to Group entities – – – Other cash outflows (99) (3) Net cash flows from investing activities (1,009) (868) Cash flows from financing activities Cash was provided from: – Proceeds from borrowings 4,241 3,188 – Proceeds from issue of equity instruments – 653 – Proceeds for equity instruments not yet issued – – – Interest received 13 26 – Other cash inflows 8 3 Cash was applied to: – Interest paid (332) (334) – Repayment of borrowings (3,894) (3,268) – Settlement of borrowing derivatives (24) – – Surrendered/cancelled equity instruments – (475) – Dividends paid to non-controlling interests (16) (14) – Dividends paid to equity holders of the Parent (336) (546) – Equity transaction costs – (18) – Other cash outflows – (1) Net cash flows from financing activities (340) (786) Net increase/(decrease) in cash and cash equivalents 18 (657) Cash and cash equivalents at the beginning of the year 329 991 Effect of exchange rate changes on cash balances (28) (5) Cash and cash equivalents at the end of the year 319 329 Cash and cash equivalents 340 330 Bank overdraft (21) (1) Closing cash balances 319 329