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BEGA CHEESE LTD. 2021-22 statements.pptx

  1. Bega Cheese Limited COMPANY ANALYSIS REPORT
  2. Table of contents Contents Slide number Executive summary 3 Introduction 4 Purpose of analysis 5 Description of company and industry background 6 Analysis of financial report data • Profitability ratios • Efficiency ratios • Liquidity ratios • Gearing ratios 7 Assessment of other relevant information 13 Conclusion 14 Appendice • Profitability ratios • Efficiency ratios • Liquidity ratios • Gearing ratios 15 References 25
  3. Executive summary The company analysis report of Bega Cheese Ltd. (BGA) firstly provides the introduction and purpose of the analysis followed by a description of company and industry background. A thorough review of the financial report data is made for the three years starting from 2020 upto 2022. After that, an assessment of other relevant information such as the social and environmental factors is made. This part includes a look at significant events of the company not forming a part its day- to-day routine. Finally, the result of the company analysis is stated in conclusion at the end of the report.
  4. Introduction Bega Cheese Limited is Australia’s leading processor, manufacturer and distributor of dairy and associated products. It caters to both the Australian and the international markets with an array of products that include natural cheese, processed cheese, butter, cream cheese, packages cheese, powders and nutritionals. It has five production facilities and operates under a co-operative structure. Its two primary business segments are Bega Cheese and Tatura Milk. A strategic alliance with Mead Johnson and the sale of infant nutritional assets to the company has been its principal corporate activity recently. The analysis of the company is made to assess its profitability, liquidity, efficiency, gearing and cash flows.
  5. Purpose of analysis The primary purpose of preparing the company analysis report for Bega Cheese Ltd. is to analyze the company's profitability. It is also to see whether the company has enough liquidity to pay off its debtors in time. The other purpose of the analysis is to assess the efficiency of the management of the company in running the business and achieving the stated objectives; to see whether the assets of the company are being utilized optimally and whether the shareholders can earn adequate returns on their investments. Also, how much debt the firm employs to purchase its assets and whether it can justify the same through the profits made by it.
  6. Company and industry background The company was established in 1899 and was officially opened as a ‘butter factory’ in 1900,which was later changed to ‘Bega Co-operative Society Ltd.’ in 1944. The company obtained 70% stake in the dairy company based in Victoria named Tatura Milk Industries in the year 2007. In 2008, the company changed its structure from being co-operative and became an unlisted public company ‘Bega Cheese Ltd.' In 2011 the company was listed on the Australian Securities Exchange, and it also gained the remaining 30% stakes of the Tatura Milk Industries. Currently, the firm amasses more significant percentage of the international Mondelez business in Australia and New Zealand. Bega Cheese Ltd., a Food Products company comes from the Industry Group Food, Beverages & Tobacco. It operates in the Consumer Staples sector.It is a crucial player in the Australian dairy industry, which has had a tumultuous year due to a price decline and a massive increase in the global dairy production and a significant reduction in milk prices made by the critical competitor and largest milk processor Murray Goulburn.The other main competitors are Fonterra Co-op Group, Lion Nathan National Foods and Warrnambool Cheese and Butter among others. The other factors causing the challenges in the industry are the fluctuating Australian Dollar, variability in the local milk production and changing consumer preferences.
  7. Analysis of financial report data BEGA CHEESE LIMITED FINANCIAL ANALYSIS Particulars 2022 2021 2020 Profitability ratios 8.99% 3.96% 22.92% Australian dairy industry average -1.6% 4.1% 8.1 Return on assets 7.01% 2.99% 17.05% Australian dairy industry average 1.2% 5.0% 7.4% Net profit margin 3.37% 1.48% 8.75% Efficiency ratio Inventory turnover ratio(in days) 67.78 69.75 66.62 Settlement period for accounts receivable 40.16 37.10 39.86 Settlement period for accounts payable 51.78 57.07 57.60 Assets turnover(days) 173.82 180.60 187.36
  8. Liquidity ratio Current ratio 1.65 1.83 1.52 Quick asset ratio 0.74 0.75 0.65 Cash flow from operations 0.30 -0.09 0.21 Gearing Gearing ratio 13.14 16.20 6.56 Debt to total assets 44.12 43.40 42.70
  9. Profitability ratio • Profitability ratios are financial metrics that measure a company's financial health and its ability to generate earning • Return on shareholders’ equity (ROE) ratio measures the profitability of shareholders‘ investments. Bega’s ROE drops from 22.92% in 2020 to 3.96% in 2021 which could be result of decrease in income and increase in overall expenses, hence profits available to shareholders, in the year 2021. The ROE recovers in 2022 to almost 9% when Bega’s revenue increased at 7.45% • Return on assets (ROA) measures the efficiency of the company in turning its assets to generate net income. The higher the percentage, the more efficient the company is in converting its assets to generate profits.The investment on additional assets in hope to increase profits faltered as their ROA declined from 17.05% in 2020 to around 3% in 2021. Net profit before tax doubled in 2022 resulted in the ROA to recover to 7.01% • In comparison with Australian dairy industry average, Bega has performed extremely well in year 2020 with an impressive 22.92% ROE and 17.05% ROA as compared to industry average of 8.10% and 7.4% respectively. Whilst 2021 has been a poor year for Bega, with both ROE and ROA lower than industry average, they managed to recover in year 2022 when most of its competitors experience lower ROE and ROA. Net profit margin calculates the percentage of profit a company produces from its total revenue. Bega’s net profit margin, dropped almost 80% from 8.75% to 1.48% in 2021 due to increase in expenses. But it has staged a recovery in 2022 to 3.37% attributed to increase in revenue
  10. Efficiency ratios Efficiency ratios access the company effectiveness in managing its assets. Among efficiency ratios, inventory turnover indicates a minor increase from 66.62 days in 2020 to 67.79 days in 2022, which means the company, is not able to move its inventory fast enough. Accounts receivable ratio has also increased slightly from 39.86 days in 2020 to 40.16 days in 2022. It shows that the company is taking more time to recover its dues than before, which may be the results of seasonality or some large but slow payers as well. On the other hand, Bega seems to pay off its creditors more quickly than before which means it may be unable to negotiate better terms with them dropping from 57.6 days in 2020 to 51.78 days in 2022 . Bega’s asset turnover appears to have been improving over the three years from 187.36 days in 2020 to 173.82 days in 2022, as it can generate more sales in lesser time than before. This improvement means they are utilizing their assets well
  11. Liquidity ratios Liquidity ratios answers questions like whether the firm would have trouble paying off what it owes others within the coming year. Company’s liquidity position is comfortable with the current ratio moving from 1.52 times in 2020 to 1.65 times in 2022. Quick ratio shows a rise from 0.65 to 0.74 in the same period. This increase means that the company enjoys a sound liquidity position and can pay off its short-term liabilities with ease. Its cash flow from operations also improved from 0.21 times in 2020 to 0.30 times in 2022 which indicates that the company has pulled itself from the temporary negative cash flow of -0.09 in 2021 and are now in a more favourable cash flow position
  12. Gearing ratios Gearing ratio is used to analyze a firm’s bankruptcy risk and capital. Gearing ratio has moved from 6.56% in 2020 to 13.14% in 2022.Similarly, the debt to asset ratio has jumped from 42.70% in 2020 to 44.12% in 2022. This climb shows that the company is using more and more debt to fund its operations. This rise could be a good move for the equity shareholders, as their returns would increase. However, it exposes the company to more risk with the increased interest payment burden.
  13. Assessment of other relevant information According to the Chairman of the company Barry Irwin and its CEO Aidan Coleman, environmental risk has the potential to impact all areas of its business like the suppliers, customers and the communities due to which it has come out with a sustainability report for the company. This report shows that the company successfully reduced its consumption of energy by 7% and recycled 61% of its FY 2021 solid waste. Its social impact was that it had 22% women in managerial roles throughout the year. It also reduced the lost time due to injuries by 11%. Bega Cheese formed a long-term strategic alliance with Mead Johnson (MJN Alliance) on 24th April 2017. It also completed the sale of its spray dryers in Tatura and the infant formula finishing plant at Derrimut to Mead Johnson Nutrition (Australia) Pty for which it received A$180m. These funds reduced its need for bank funding for the acquisition of Mondelez’s Australian and New Zealand groceries business including Vegemite. This activity was not part of its day-to-day operation and had a significant impact on all the three financial statements. It impacted the revenue statement as the revenues from Bega Cheese, and Tatura milk doubled from A$406m and A$232m to A$808m and A$468m respectively. Balance Sheet impact was felt when the sold assets went away from the Balance sheet and the due proceeds were received. Even the cash flow statement was affected as the funds from the sale of assets showed cash inflow of A$180m
  14. Conclusion The company analysis of Bega Cheese Ltd. shows that it has a sound financial position as depicted in the various ratios of profitability, liquidity, efficiency and gearing as analysed above. The company has managed to maintain its profitability and has been able to perform better than its industry peers even in the face of stiff competition and a significant turmoil in the dairy industry which has been severely affected by low prices and a shift in the global dairy demand and supply balance. The company has a robust liquidity position, and its management has shown efficiency in the operations and optimal control of the company assets. It has acquired the necessary debt to achieve its financial objective.
  15. Appendices PROFITABILITY RATIOS: • Return on shareholders equity=Profit available/average shareholders equity * 100 2020 =66,055/288,170 x 100 = 22.92% 2021=12,408/313,527 x 100 = 3.96% 2022= 28,779/320,252 x 100 = 8.99%
  16. • Return on assets: Net profit before interest and tax/average total assets *100 2020=93,580/548,929 x 100 = 17.05% 2021=16,434/550,528 x 100 = 2.99% 2022=39,900/569,547 x 100 = 7.01
  17. • Net profit margin= Net profit before interest and tax/sales *100 2020=93,580/1,069,392 x 100 = 8.75% 2021=16,434/1,112,630 x 100 = 1.48 2022=39,900/1,195, 967 x 100 = 3.34%
  18. Efficiency ratios • Inventory turnover ratio: average inventory/cost of sales *100 2020 = 173,597/951,117 x 365 = 66.62 days 2021 = 189,528/991,538 x 365 = 69.75 days 2022 = 193,644/1,042,595 x 365 = 67.78 days
  19. • Settlement period for accounts receivable: average accounts receivable/sales revenue *100 2020 = 105,068/1,069,392 x 365 = 35.88 days 2021 = 113,084/1,112,630 x 365 = 37.08 days 2022 = 131,591/1,195,967 x 365 = 40.15 days
  20. • Settlement period for accounts payable: average accounts payable/purchases *100 2020 = 153,421/972,257 x 365 = 57.60 days 2021 = 151,617/1,023,400 x 365 = 54.09 days 2022 = 147,563/1,040,104 x 365 = 51.79 days
  21. • Assets turnover ratio: average total assets/sales *365 days 2020 = 548,929/1,069,392 x 365 = 187.36 days 2021 = 550,528/1,112,630 x 365 = 180.60 days 2022= 569,547/1,195,967 x 365 = 173.82 days
  22. Liquidity ratios • Current ratio: current assets/current liability 2020 = 321,541/212,170 = 1.52 times 2021 = 328,589/179,287 = 1.83 times 2021 = 346,274/209,253 = 1.65 times • Quick asset ratio: current asset-(inventories + prepayments)/current liabilities 2020 = 137,374/212,170 = 0.65 times 2021 = 133,700/179,287 = 0.75 times 2022 = 153,876/209,253 = 0.74 times
  23. • Cash flow from operations : operating cash flow/average current liabilities 2020= 40,474/193,471 = 0.21 2021 = (17,345)/195,729 = -0.09 2022 = 58,980/194,270 = 0.30
  24. Gearing ratios • Gearing= non-current liabilities/total equity +non current liabilities x 100% 2020 = 22,079/336,467 x 100 = 6.56% 2021 = 60,466/373,132 x 100 = 16.20% 2022 = 49,583/377,421 x100 = 13.14 % • Debt to total assets = total liabilities/total assets *100% 2020 = 234,249/548,637 x 100 = 42.70% 2021 = 239,753/552,419 x 100 = 43.40% 2022 = 258,836/586,674 x 100 = 44.12%
  25. References Australia, D., 2017. A guide for investment and the Australian dairy industr,s.l.: Dairy Australia Limited. AFN, 2022. Bega Cheese publishes its first sustainability report. [Online] Available at: Morningstar, 2018. DatAnalysis Premium, s.l.: Moriningstar Inc.. Annual Report, 2022. Bega Cheese Ltd. - Annual Report, s.l.: s.n. IBIS World, 2018. Cheese Manufacturing in Australia: Market Research Report. [Online] Available at: reports/manufacturing/food-product/cheese- manufacturing.html Gibson, C., 1987. How Chartered Financial Analysts View Financial Ratios. Financial Analysts Journal, 43(3), pp. 74-76. Birt, J. et al., 2017. Accounting: Business Reporting for Decision Making. 6th ed. s.l.:John Wiley & Sons Australia, Ltd. Hays, F. H., De Lurgio, S. A. & Gilbert, J. A. H., 2009. Efficiency Ratios and Community Bank Performance. Journal of Finance and Accountancy, pp. 1-15. Ehrhardt, M. C. & Brigham, E. F., 2011. Financial Management Theory and Practice. Mason(Ohio): South-Western Cengage Learning.Muradoglu, G., Bakke, M. & Kvernes, G. L., 2005. An investment strategy based on gearing ratio. Applied Economic Letters