The first thing I noticed whilst looking at the financial statements was that there were no restatements. This is good as it makes comparability easier and there is no wondering why there was a change of accounting method.
It is interesting to see the shareholder representations. As previously mentioned Nestle S.A, Switzerland now holds 63.48% or 503,177,098 shares. There a total of 29,101 shareholders of which just over 60% own only between 1-1,000 shares. In fact 86% of shareholders only own a combined total of just under 3% of the shares in the company. I am not sure how this compares to other companies but it is an interesting look at the wealth distribution of one of the biggest companies in Nigeria.
The company has recorded consistent growth in revenue however the operating profit has not maintained the same growth. In fact profit after tax has somewhat stagnated over the last 3 years. This would mean the growth in the costs of business has exceeded the growth in revenue. I wonder what the cause of this is and whether it is expected to continue into the future. Looking through the income statement I can see marketing and distribution costs and finance costs seem to be the major contributors.
I wonder what might be the cause of these rises. I can see there are notes attached to the finance costs and in 2014 there was a much larger net foreign exchange loss than previously. This makes sense as in the chairman's statement there is a discussion about the economic environment within Nigeria. Although the country has experienced continual GDP growth, declining oil prices amongst other factors led to a devaluation of the Naira which is the national currency. The uncertainty surrounding the global market and the resources sector may continue to have an influence over the company's results.
It's hard to tell what the cause of the increase in marketing and distribution is as it only appears in the notes of the 2014 financial statements. There does seem a large increase of around 60% in sales promotion expenses. Why is this so? Is there increased competition? If so, what impact will this have on future revenue or the costs of future promotions?
Looking further into the statements and another area of concern develops. The current ratio of the company is less than 1. This means the company does not have enough current assets to cover their current liabilities. In fact cash and cash equivalents dropped from 13,716,503 thousand Naira to 3,704,505 Naira. This is very concerning, I wonder why this is. The notes contain a lot of information surrounding liquidity risk and credit risk among others. IT is a bit confusing but definitely something that would require deeper investigation.
Looking further into the cash situation I note dividends paid have almost tripled over the last 3 years, borrowings has increased and investments has decreased? Why has the dividends paid increased so dramatically? Cash spent on investments may have decreased as they had just finished their upgrades or new facilities which would not be a bad thing. However it may have decreased as they have looked to make savings which if this was the case would not be good as without investments the future may be bleak. Is the company financing its activities with too much debt? Is this the reason cash is down? Although many these are just a few of the questions raised in my head after looking at the cash and cash equivalents of the company.
A more in depth look at the statement might provide more questions as well of some of the answers. I never knew annual reports and more particular financial statements could be so interesting. That may sound a little nerdy but even after a brief look at I want to know so much more about them. I want to understand what the numbers mean and the business reality they are trying to convey.
Wednesday, 9 December 2015
Nestle Nigeria PLC
Although the Nestle story starts way back in 1866 it was not until 1957 that they ventured into Central and West Africa. Nestle Nigeria PLC did not start trading until 1961 and was not listed on the Nigerian Stock Exchange until 1979.
Nestle Nigeria PLC forms part of the 22 regions under the control of Nestle Central and West Africa (CWA) Limited who is the major shareholder of the company. This is a concept Nestle has followed world wide in which smaller companies are organised into different regions. Although in 2014 Nestle CWA transferred it's 59.59% shareholding to Nestle S.A, Switzerland resulting in that company now holding 63.48% of total shares.
Nigeria itself has a population of over 170 million with more than 500 languages being spoken with English remaining the official language. Although rich in natural resources Nigeria remains one of the poorer countries with high unemployment rates and much corruption and political instability. This would present Nigeria PLC with the challenges of keeping prices low and distancing themselves from any form of bribery or corruption.
The product offering in the region is limited and not as extensive as you may find in other countries. Not surprising considering the previously mentioned high unemployment. With lower disposable incomes I would think the product line would have to be kept simple to thrive in the region. For instance the popular Kit Kat, of which 150 are consumed worldwide every second, is not distributed in Nigeria or in fact the entire Central and West Africa region. In fact there are no Nestle chocolate or confectionary brands distributed in Nigeria other than the aptly named Chocomilo.
Other than Chocomilo the other products include baby foods, cereals, water, Milo, some Maggi foodstuffs, full cream milk and coffee.
Taken directly from the Annual Report the company's objective is 'to be the recognised leader in Nutrition, Health and Wellness and the industry reference for financial performance'. As part of their "creating shared value" program the company is also committed to several social projects aimed at both people and the environment. These projects range from reducing saturated fats and removing trans fats in products to raising awareness of water conservation and improving access to water sanitisation to elimination of child labour in key categories.
It does make me wonder what they mean by "key categories". Surely they should want to eliminate all child labour not just in "key categories".
Other issues facing the company revolve around sustainability. Nestle has identified an increase of 70-80% by 2050 in agricultural food production to meet the demands of a growing global population. In Nestle Nigeria PLC much of this focus has been placed on water management.
Also of importance to the company is the issue of nutrition. Not only is this relevant in a global population that is increasingly looking for healthier options thus becoming more popular. But I would also think this is important considering the socio-economic status of the Nigerian people. With lower incomes sometimes the first sacrifice is nutrition and as such I would hope there is a high importance within the company to produce low cost high nutrition foods.
Further information on other commitments and creating shared value can be found on the following links. There is also a YouTube clip posted below the discussion.
- http://www.nestle-cwa.com/en/csv/what-is-csv/commitments
- http://www.nestlecocoaplan.com/
- http://www.bloomberg.com/news/articles/2015-08-31/nestle-s-kitkat-to-change-cocoa-supplies-to-address-child-labor
Nestle Nigeria PLC forms part of the 22 regions under the control of Nestle Central and West Africa (CWA) Limited who is the major shareholder of the company. This is a concept Nestle has followed world wide in which smaller companies are organised into different regions. Although in 2014 Nestle CWA transferred it's 59.59% shareholding to Nestle S.A, Switzerland resulting in that company now holding 63.48% of total shares.
Nigeria itself has a population of over 170 million with more than 500 languages being spoken with English remaining the official language. Although rich in natural resources Nigeria remains one of the poorer countries with high unemployment rates and much corruption and political instability. This would present Nigeria PLC with the challenges of keeping prices low and distancing themselves from any form of bribery or corruption.
The product offering in the region is limited and not as extensive as you may find in other countries. Not surprising considering the previously mentioned high unemployment. With lower disposable incomes I would think the product line would have to be kept simple to thrive in the region. For instance the popular Kit Kat, of which 150 are consumed worldwide every second, is not distributed in Nigeria or in fact the entire Central and West Africa region. In fact there are no Nestle chocolate or confectionary brands distributed in Nigeria other than the aptly named Chocomilo.
Other than Chocomilo the other products include baby foods, cereals, water, Milo, some Maggi foodstuffs, full cream milk and coffee.
Taken directly from the Annual Report the company's objective is 'to be the recognised leader in Nutrition, Health and Wellness and the industry reference for financial performance'. As part of their "creating shared value" program the company is also committed to several social projects aimed at both people and the environment. These projects range from reducing saturated fats and removing trans fats in products to raising awareness of water conservation and improving access to water sanitisation to elimination of child labour in key categories.
It does make me wonder what they mean by "key categories". Surely they should want to eliminate all child labour not just in "key categories".
Other issues facing the company revolve around sustainability. Nestle has identified an increase of 70-80% by 2050 in agricultural food production to meet the demands of a growing global population. In Nestle Nigeria PLC much of this focus has been placed on water management.
Also of importance to the company is the issue of nutrition. Not only is this relevant in a global population that is increasingly looking for healthier options thus becoming more popular. But I would also think this is important considering the socio-economic status of the Nigerian people. With lower incomes sometimes the first sacrifice is nutrition and as such I would hope there is a high importance within the company to produce low cost high nutrition foods.
Further information on other commitments and creating shared value can be found on the following links. There is also a YouTube clip posted below the discussion.
- http://www.nestle-cwa.com/en/csv/what-is-csv/commitments
- http://www.nestlecocoaplan.com/
- http://www.bloomberg.com/news/articles/2015-08-31/nestle-s-kitkat-to-change-cocoa-supplies-to-address-child-labor
Monday, 7 December 2015
Chapter 3 ideas, reflections and reactions
It
is true that being introduced to the financial statements is like meeting
someone for the first time. At first you may know a little bit but over time as
you get involved deeper you understand a lot more and understand where the
numbers are coming from much the same as you will understand where a person’s
behaviour or stance comes from. But unless we make that effort we will not get
that far. I definitely find that myself if I am not interested in something I
will not take the time. Sometimes the way I study I like to relate something to
my personal experiences so that it becomes relevant to me.
The
statement about each of us being different much like a firm’s financial statements
being different is spot on. Although the layouts may be similar there are
differences which at first can throw you and make comparing different firms a
hard task. I find it surprising there are no set rules for the development of
financial statements especially when one of the enhancing characteristics is
comparability. For me comparability should not only be representative in a
single firm but across all firms. The reason financial statements are provided
is so users can make decisions on the allocation of scarce resources. If you
cannot compare, how can you make these decisions.
Is
the annual statement really a marketing document? I had never thought of this
before. But when you step back and think about it that is exactly what it is.
The annual statement normally contains some sort of dynamic cover page or some
smiling faces. My company’s statements contain happy, smiling customers all through
the document. It is normally printed as the feel good story of the year. The chairman’s
report will highlight the statistics or ratios that show just how well the
company is doing and don’t forget to mention the strict corporate governance
processes in place. Wow such a model corporate citizen, how could I not give
you all my money?
I
am not an expert in annual reports but I wonder the last time a report came out
that said ladies and gentlemen we are in trouble! My company’s statements use
graphs to show performance continually rising over the last 4 years. I wonder
why do not use these same graphs to show executive remuneration.
Once
again a new way of looking at things that helps the understanding of key
concepts. The simple balance sheet is representative of only one day. Although
now I think about it, it is hardly surprising yet I had never considered this
before.
The
example of Ryman Healthcare retirement village’s names is another example of how
a company can add value. To the extent that names of a village are strategic makes
me wonder how we can actually explicitly trust companies. The concept of trust
was raised in Chapter 1. Much the same as the way products are strategically located
in the aisles of the local grocery store. Accounting requires so much judgement
and allows different methods. How can I trust what I see in the “marketing
documents” or the annual report/financial statements?
How
can I check the extended accounting equation by inputting the numbers from my
company’s financial statements? The figures from the balance sheet contain
assets liabilities and equity after the revenue and expense accounts have
already been closed off. So by adding revenue and expenses to the equation I
will be left with an unbalanced equation of exactly the same amount as profit
or net income. Am I missing something or this to be continued at a later stage?
The only way the equation would equal is if equity in the equation represented
the amount before revenue and expenses are closed off. I do not understand how
this equation works at the moment.
Things
only get worse as the reading moves onto changes in equity. This is the
statement which I have had the least interaction with and I do not fully understand
it. Maybe it is the case similar to meeting someone where you have formed an
adverse opinion but once you get to know them you realise they are a really
nice person and you get along famously with them. Hopefully working through my
company’s statements through the term will get me to that stage.
I
liked the discussion on ratios. We are very much tied to our past. As the example of the QWERTY keyboard showed in Chapter
1 we very much stick to what we know.
We
tend to use what has worked in the past rather than understand the underlying
concepts and link them to the individual business to develop a sense of what is
happening. It was the same in my sporting days playing rugby league. We were
always keen to do what someone else had done such as plays or structures. Yet
we did not understand the underlying concepts and how they were related to the
strengths of particular teams and not necessarily ours. Much like ratios here
is not a one size fits method as each number represents something different to
each company.
Relating
back to sport the same can also be said for new ideas that “rock the boat” of
common consensus. New ideas were easily shot down and players were not willing
to try them unless they came from renowned coaches or star players from a
higher level. We do not know why we are doing things or the underlying
principles we are just doing them because they worked for someone else.
The
same can be said for accounting ratios or practices. Those concepts or ideas too
far removed from current practices are quickly shot down yet some have come
back into focus many years later as possibly a better way of doing things. The
wide range of theories also show value is in the eye of the beholder and each
person’s reality is different from the next.
Chapter 1 ideas, reflections and reactions
What
is accounting? This is not an easy question and one person’s reality might not
be the same as another. The world of business is changing and with that change
so too does the role of accounting. Ask the same question in 10 or 50 years’
time and you may get a completely different answer. This question reminds me of
an assignment for a previous course in which I had to interview individuals in
the accounting field and ask them what they thought the future of accounting
would be and how accounting has changed since they entered the field. Most
highlighted the increased use of software and thought the future would be based
more on real time actions/solutions rather than reactive as it is now and more
IT based. The role of accounting will need to change to remain relevant. As in
the text some may believe accounting is simply recording a whole lot of
transactions than why do we need accountants?
The
text mentions accounting is supposed to help connect us to the reality of what
is going on in a firm but does it really do this? When thinking of all the corporate
collapses in recent history, has accounting really shown us the depths of the fraud
and manipulation within these companies? Or this so called reality. Accounting
can tell a story about a firm but how much of this is open to interpretation
and judgement. Accounting can make it easier to see what the reality of a firm
is but the numbers alone are not enough. Statistics, ratios and numbers can
often be manipulated to highlight what the author wants you to see.
Value is subjective and different for everyone.
Considering the amount of potential users interested in the operations of a
business it is hard to provide information for everyone. Users value different
information and as such I wonder does producing a general purpose financial
report actually make it more difficult for users to find the information that
they value. And if you consider so many investors do not have an accounting
background does accounting actually make it any easier for them.
Painting
a picture of the businesses in Yeppoon makes me stop and look at all the
businesses where I live. The next day when I drove into work I was looking all
around me to see all the different businesses whilst of course keeping a strong
eye on the road. There are so many different industries, products and customers.
Its only when you take the time to actually stop and look around you realise
how many businesses there actually are and that they all use accounting in some
form. It is so easy to think of accounting as just big business but this
section of the chapter really takes it back a step and looks at the bigger
picture. Going back to value it is easy to see there are so many ways firms can
offer value such as location or price. But who does accounting add value to? Is
it the manager looking for a bonus linked to short term profits or the investor
looking for long term profits or somebody else?
It
was interesting to find out how far accounting actually stretches back.
Although I guess it is not surprising but I never had really considered where
it came from. But to know where it is heading you have to understand the past I
guess.
The
sections on the musical instrument and type writer didn’t resonate with me and
I wondered what the author was trying to say. I am probably wrong but I assume
accounting is tied to the past and the constraints of this will limit the
changes as we move into the future. If we drastically change the way accounting
is done we may alienate too many users just to suit the future generations. Too
many changes may also cause a substantial departure from the historical fundamental
basis of accounting.
I
wasn’t sure why the bookkeeping without books section was there. I most likely
missed the point but to me it was irrelevant.
I
always find it interesting to find the origin of things and the words such as journal
and ledger were no different. Although with the use of computer software these
terms or in fact the recording process isn’t used as much I do believe it is
important to understand how the accounting machine works. I found it important in
previous assignments as I was able to correct errors that I would not have been
able to if I did not understand the process. Whether the real world is like
this I will find out very soon.
I
had never looked at double entry accounting and the debit and credit procedure
such the way it was described in the reading. To be honest I had never thought
at all why it is done. That to me is the benefit of courses such as this that
aim to make you think rather than just prescribe what to do. If you can truly
understand the underlying foundations of what you are doing you can handle any
difficulty that comes your way. Just doing what you are told without thinking
about it will not get you there.
Tuesday, 10 November 2015
Intro
Hi everyone,
I am in the last term of my Bachelor of Accounting/Bachelor of Business program, YAY !! I have only 3 courses left and cannot wait to finish. I recently returned from travelling through parts of Europe for 1 month and cannot wait to go on my next adventure wherever that may be. I was also lucky enough to go to the NRL Grand Final and watch the mighty Cowboys win the title. I wish everyone the best of luck this term and also for your studies/endeavours.
I am in the last term of my Bachelor of Accounting/Bachelor of Business program, YAY !! I have only 3 courses left and cannot wait to finish. I recently returned from travelling through parts of Europe for 1 month and cannot wait to go on my next adventure wherever that may be. I was also lucky enough to go to the NRL Grand Final and watch the mighty Cowboys win the title. I wish everyone the best of luck this term and also for your studies/endeavours.
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