Financial Reporting
What is it?
•
Measure performance of business to guide decision making
•
Internal and external reporting
•
Different users…
- Management
- Investors & analysts
- Banks
- Employees
- Government
- HMRC
- Others?
• … focus on different things in the financial statements.
1
What does it look like?
•
Financial information generally comprises 3 primary statements:
Profit & loss account:- Measures financial performance over a period
Sales
Cost of sales
Operating expenses
Tax
Interest
Net profit
x
(x)
(x)
(x)
(x)
x
Balance sheet:- Indicates financial status at a point in time
Assets
Liabilities
Net assets
x
(x)
x
Shareholders’ funds
x
Cash flow statement:- Measures changes in cash over a period
Net profit
+/- non cash items
Operating cash
Tax paid
Interest paid
Net cash flow
x
(x)
(x)
(x)
(x)
x
2
How do we produce it and ensure accuracy?
•
Processes and systems in place to record financial information
•
Framework of internal control to ensure numbers are accurate
•
Consolidation across the business:
The
Edrington
Group
Whisky
production
Rum
production
Selling
businesses
Blending and
bottling
•
•
•
•
Scotland
SAP system
GBP currency
•
•
•
Dominican Rep
BPIX system
DOP currency
•
•
•
Americas, EMEA, Asia
SAP Intrepid
Every currency!
Review and audit of financial information
3
Internal financial reporting
•
Primarily to provide management with information on which to make business
decisions.
•
Management identifies Key Performance Indicators (KPI’s) – the
measurements which tell us whether we are operating profitably or not - and
tracks actual performance against budgeted targets
•
KPI’s can be financial and non-financial. At Edrington we broadly separate
financial KPI’s into three categories
Operational (making)
Whisky cost variances
Supply chain variances
Logistics variances
Distillation production cost/loa
Cask investment
Stock on hand
Commercial (selling)
Cased contribution
- by brand & market
A&P spend
- by brand & market
Group (overall)
Consolidation
Overheads
Interest
Currency
Taxation
S/holder return
4
KPI page
YTD
YTD
YTD
Actual
Plan
Las t Year
£'000s
£'000s
£'000s
40,032
41,560
37,541
9,785
11,371
12,537
67,636
60,866
49,916
5,626
5,860
4,727
28,666
40,460
40,352
151,745
160,117
145,072
JV & Other Brand Contribution
4,101
3,785
3,247
Dis tribution
9,714
7,617
8,973
165,560
171,519
157,293
2,739
2,808
2,897
11,196
5,691
10,541
179,496
180,018
170,731
(37,016)
(38,512)
(34,236)
7,830
4,763
11,760
150,310
146,268
148,255
(22,407)
(23,861)
(23,648)
127,903
122,408
124,607
Taxation
(29,852)
(32,432)
(34,552)
Minority Interes ts
(37,720)
(35,247)
(33,181)
60,331
54,729
56,875
The Famous Grous e Family
The Cutty Sark Family
The Macallan
Highland Park
Brugal
Key Brand Contribution
Cas ed Contribution
Lothian
Trade & Other Income
Core Contribution
Overheads & Incentive Schemes
Currency Gain/(Los s es )
Earnings Before Interes t & Tax
Interes t
Profit Before Tax
Profit Attributable to Edrington Shareholders
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External financial reporting
•
Primarily to provide investors, banks and authorities with information on
which to make their decisions.
•
Format of statutory reporting governed by law and accounting rules. For UK
private companies, only annual report required.
•
Annual report requires to be audited by independent auditors
•
Tax returns are submitted to the HMRC together with the statutory financial
statements.
•
Banks and private lenders request access to both internal and external
financial information.
•
They are interested in ability of company to generate cash for loan repayment.
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External financial reporting – bank covenants
•
Banks commonly use ratios to determine whether a company has sufficient
profit and cash flow to meet its loan repayments. These are generally used to
assess whether the “gearing” of the company is appropriate.
•
Simply put, gearing is the level of debt in a company, relative to net assets
owned by shareholders (shareholders’ equity). A highly geared company will
have a lot of debt, with minimal equity. It will need to generate significant profit
to repay loan interest and is considered higher risk. This also applies to nation
states!
•
Common ratios used to measure gearing are:
- Net debt/EBITDA
- EBIT/ Net interest
• The bank sets targets for these ratios called covenants. If the company fails to
meet the target, the cost of borrowing (interest) goes up, and the bank can
ultimately decide to ‘call in’ the loan which could put the company out of
business.
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Anyone fancy a career in Finance?
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