Abstract
This paper contains the appraisal and investment analysis of the Associated British Food PLC. An analysis of the company's performance, financial position and future potential and risk as a basis for the investment decision making. From this report, on can demonstrate and understands that whether one should invest in the company following the 2009 report and the aspects one would be planning to monitor while waiting for the upcoming 2010 report from the company.
Company Profile
Associated British Foods PLC is basically a global food, retail and ingredients Company. Its headquarter is situated in London, United Kingdom. The aim and objective of the Associated British Foods PLC is to achieve strong, strong leadership positions in the market.The company processes and produces food products which widely comprised of cereals, flour, baking and confectionary items, vegetables, teas, dairy products etc. They are also renowned for the refine sugar, manufacture textiles, process meats and glass manufacturing operations. The company is operating widely and mainly in Europe, Australia, New Zealand, Asia, and the US. The company is listed as the biggest and largest company on FTSE100 and London Stock Exchange.
Analysis Of Company's Performance:
With considerable challenges, the company provided satisfactory outcomes at a time during economic uncertainty and decreasing consumer spending. The group revenue has increased by 12% and adjusted operating profit increased by 8%. Agriculture meets the financial expectation of the last year and Sugar, Primark and Ingredients posted the major profits and improvements. In contrast, grocery was affected and its profit has declined. The outcomes from the Sugar have moved substantially with both increasing revenue and profit by 24%. The sales of retail have increased by 20% as a result of increment in selling space and like-for-like sales growth of 7%.
Operating Profit margin has declined from 12.1% to 10.9% in year 2009. Revenue from grocery segment has increased by 13% but the profit has been declined by 2% due to the problems faced by the company in US during the first half. Moreover, the performance of company has been improved during the second half. The revenue and profits in the Ingredients segment has been increased 20% and 13% respectively.
Analysis of Financial Performance:
Income Statement
Overall revenue of the company has been increased by 12% with a substantial growth in every business segment. The food segment of the company has benefited from the declining value of sterling. As far as Primark is concerned, there was a strong trading in this segment and reducing the affect of disposals and acquisitions, its revenue increased by 7%. Adjusted operating profit increased by 8%. Excluding the benefits of acquisitions, it increased by 3% without any impact of sterling value decrease.
Under international accounting standards, inventory is acquired at a fair value and profit is declined when the sales take place. Overall, a net loss of £65m arises on the sale and closure of some businesses as reported at the half of the fiscal year. Finance expense minus finance income of £78m with a charge of £53m previous year. This continuous increase is resulted from the important level of capital investment in organic growth opportunities, the acquisition of new businesses and the affect of the US private placement.
Other financial income of £13m was basically net profit from retirement benefit schemes. Profit before tax fell from £527m to £495m. This profit before tax included the effect of the loss on disposal of businesses during 2009 and an £11m reduction. Profit before tax for the year 2008 included a charge of £46m for exceptional. By adjusting these items, profit before tax increased by 4%
The tax rate of year 2009 i.e. 25.3% was relatively higher than that of year 2008 i.e. 24.4%. Earnings per ordinary share were 1% ahead of last year. Adjusted earnings per share increased by 5%. The dividend for the fiscal year 2009 increases by 4%. In correspondence to IFRS, no accrual has been made.
Balance Sheet
The elements of balance sheet of Associated British Foods PLC of the year 2009 increased are non-current assets, property, plant and equipment, capital expenditure net depreciation, working capital. Return on the capital fell to 15.4%.
Net Cash Flow
The increment in Net Cash Flow as compared to the fiscal year 2008 shows that the company has a strong working capital performance during the fiscal year 2009.
Principal Risks and Uncertainties
The main risks and internal controls are being reviewed by the group with internal audit activities. The board is responsible for analyzing the risks measure and their implementation. The main and basic risks controls that are being overlooked by board are:
Food Safety - to manage this risk food segment manufacturing sites have implemented the food safety systems.
Global economic slowdown and changing consumer demand - to manage the consumer falling demand or consumer switching to other alternatives.
Input costs, supplier and supply chain reliance - constant monitoring of external environment to deliver the products at competitive prices.
Health and safety - appropriate training and consultations on matters regarding health and safety being provided and it mainly includes the serious injuries, accidents etc
Financial and commodity risks - in order to manage this risk a framework of guidelines and policies have been developed by the board.
Taxation Risk - to overcome this problem the provision has been settled based on interpretation of specific tax law
Conclusion and Future Perspective:
The company's financial statements and analyzing them gave an overview that this company is growing steadily. Due to economic recession all around the world, there are some chances that the company's profit would decline but there are still some sectors and segments which will overcome this loss in the mean time or in future. The consolidated statements of company as presented at http://www.abf.co.uk/reports_2009.aspx gave an insight to analyser and reader about the company.
By reviewing and analyzing the financial statements and the performances, one can interpret his investing decision. As far as company performance is concerned, it is suitable for an investor to invest in 2010 as the performance is steady not too much fast growing nor declining and reducing.
