Food and Retail industry is one of the widest growing sectors in both UK and internationally. Food industry is always growing and considered one of the safest industries provided good quality and service to the customer. Associated British Foods is one of the biggest multinational food processing and retailing company. Associated British Foods stands top second in the world for the production of sugar and baker yeast. It also produces a large quantity and variety of ingredients like lactose, enzymes and emulsifiers etc. The Associated British Foods was founded by a Canadian named Willard Garfield Weston in 1935. The company's name was changed to Allied Bakeries Limited after a month and then in 1960 the name was again changed to Associated British Foods in 1960. Throughout company's life in all the years it acquired a lot of other companies of which the major step was to acquire British Sugar. The company has exposure to lot of markets like sugar, agriculture, retail, ingredients, grocery etc. Let us understand the profitability, liquidity, solvency and corporate governance of the company while comparing it to another public listed company on London stock exchange which is Tate and Lyle and it is also a good company in retail food industry. The Associated British Foods undertakes business in a lot of sectors retail, grocery etc. The retail industry of the company is Primark. Company also has its major production of sugar as well as baker's yeast which come under ingredients. The Associated British Foods have different impacts on their profitability, Liquidity and solvency due to their type of business listed above and the impacts are listed below.
Profitability:
ASSOCIATED BRITISH FOODS
To comment upon the profitability we should have an idea of ratios like ROE, ROCE (Return on Capital Employed) and Net tangible asset value per share.
Fiscal Year Ends
2008
13/09/2008
2009
12/09/09
2010
18/09/10
2011
17/09/2011
2012
15/09/2012
Return on Equity
7.96
7.81
8.76
8.46
10.13
Net Tangible Asset Value per Share
345.98
358.10
425.43
486.94
513.47
ROCE
13.35
12.36
14.49
13.02
14.76
TATE AND LYLE
Fiscal Year Ends
2008
31/03/2008
2009
31/03/2009
2010
31/03/2010
2011
31/03/2011
2012
31/03/2012
Return on Equity
13.85
13.47
22.32
16.41
17.62
Net Tangible Asset Value per Share
130.97
130.84
105.86
131.48
148.46
ROCE
14.34
9.86
10.37
14.53
17.15
Comparison:
The return on equity for Tate and Lyle is higher when compared to the Associated British Foods which means Tate and Lyle has more profitability.
ROCE (Return on Capital Employed) is higher for the Associated British Foods is higher as the average for the last 5 years stands 13.60 where as compared to Tate and Lyle which is 13.25. So with respect to this ratio the profitability of Associated British Foods is higher.
The net tangible asset value per share is higher for the Associated British Foods is higher when compared to Tate and Lyle which is good for the investors or shareholders.
Liquidity:
ASSOCIATED BRITISH FOODS
To comment upon the Liquidity of a company we should have an idea of ratios like interest cover, net gearing and gross gearing.
Fiscal Year Ends
2008
13/09/2008
2009
12/09/09
2010
18/09/10
2011
17/09/2011
2012
15/09/2012
Cash
7.64
8.07
6.52
5.93
6.70
Quick Ratio
0.94
0.71
0.73
0.68
0.68
Current Ratio
1.51
1.23
1.31
1.24
1.26
TATE AND LYLE
Fiscal Year Ends
2008
31/03/2008
2009
31/03/2009
2010
31/03/2010
2011
31/03/2011
2012
31/03/2012
Cash
17.67
43.97
60.94
68.84
41.05
Quick Ratio
0.94
0.98
1.25
1.39
1.36
Current ratio
1.41
1.36
1.72
1.93
2.01
Comparison:
The Cash Ratio for a company should not be very less or high because a company having less cash may need money to invest and a company with more money might have invested less and might not get expected profits.
The average quick ratio for the last five years for Associated British Foods is 0.74 and for Tate and Lyle it is 1.18. The quick ratio according to accounting standards should be closest to 1.5:1 which means the ability of Tate and Lyle to meet its obligations is better.
The average current ratio for the last five years for Associated British Foods is 1.31 and for Tate and Lyle it is 1.69. The current ratio according to accounting standards should be closest to 2:1 which means the ability of Tate and Lyle to meet its obligations is better as it is the closest to the requirement of accounting standards.
Solvency/Gearing:
ASSOCIATED BRITISH FOODS
To comment upon the solvency or gearing we should have an idea of ratios like interest cover, net gearing and gross gearing.
Fiscal Year Ends
2008
13/09/2008
2009
12/09/09
2010
18/09/10
2011
17/09/2011
2012
15/09/2012
Interest Cover
8.61
7.45
10.19
9.00
8.95
Net Gearing
17.57
21.21
15.42
22.36
18.19
Gross Gearing
25.21
29.28
21.94
28.29
24.89
TATE AND LYLE
Fiscal Year Ends
2008
13/09/2008
2009
12/09/09
2010
18/09/10
2011
17/09/2011
2012
15/09/2012
Interest Cover
3.89
4.66
4.13
6.50
10.75
Net Gearing
112.74
123.20
97.10
48.21
50.34
Gross Gearing
130.41
167.17
158.04
117.05
91.38
Comparison:
The solvency ratio of a company defines its ability to meet its long term obligations like debts etc. Gearing ratios relate to the companies loans both short term and long term.
The average interest cover over the last five years for Associated British Foods is higher when compared to Tate and Lyle which means the Associated British Foods is in a better financial position.
The average net gearing ratio over the last five years for Associated British Foods is lower when compared to Tate and Lyle which means the Associated British Foods is in a better financial position.
The average gross gearing ratio over the last five years for Associated British Foods is lower when compared to Tate and Lyle which means the Associated British Foods is in a better financial position.
Corporate Governance:
The directional and controlling system of the companies is known as the corporate governance. All the roles and relationships between the company's management and shareholders and the goals to govern the company. It can also be stated as an approach or a system to direct and control the company focusing on actions of the company both externally and externally.
The UK Corporate Governance Code has some listed rules to be followed by the LSE (London Stock Exchange) listed companies of which some of the main rules are as follows.
The company Chairman and CEO should be different.
The company boards should have at least 3 non-executive directors and two of them at least with no relation with the executives personally or financially.
Audit Committee of every board should be made of non-executive directors.
All the directors should be given a long term performance related pay which can be revised at the end of each year.
The non-executive directors should see the chairman as their leader.
Comparison:
The chairman of Associated British Foods i.e. Charles Sinclair believes that governance is not for only the board but also to imply all the governance strongly to improve the culture as well throughout the group. On the whole the Associated British Group complies with the Corporate Governance rules. Whereas the Tate and Lyle also follows corporate governance but it acts much accordingly comparing itself to the market trends and needs of the customer more than its own internal governance. This with Associated British Foods is different as they prefer equal importance to governance both internally and externally.
