Introduction
The performance of the business is critical for the investors as well as stakeholders. The discipline of corporate finance offers a variety of the techniques for reviewing the financial performance of the business. In the modern competitive world, a financial performance of the business is not enough for the success. Instead, it is critical to have success in multiple dimensions that ensures sustainability. The underlying report is a comparative assessment of the two brewing companies from UK FTSE 250 listing from the Travel & Leisure sectors and Restaurants & Bars subsectors.
Introduction of Greene King Plc and the Marston’s PLC
The selected companies include Greene King Plc and the Marston’s PLC. Greene King Plc is a pub and brewing company with more than 3,000 units under its direct and indirect management. The company in the most recent reporting year completed its five year plan of moving to managed pub from the tenanted pubs (Yeomans, 2015). The company operates in three segments as depicted below:
The other selected company from the similar industry and sectors for analysis is Marston’s PLC. With 180 years of history, the company’s portfolio of pubs and bars goes to around 2,000. The company operates following three dimensions of business:
For the comprehensive review, businesses are reviewed using SWOT analysis:
The comparative analysis reveals that the Marston's PLC has shown strong performance as compared to the Greene King Plc. However, the recent move from the Greene Pub Plc of acquiring the Spirit has play a more significant role has already started giving its fruits to the acquiring company.
Financial Review
The financial performance of the business is one of the most significant aspects for reviewing the overall business conduct. Investors, analysts, and all stakeholders review financial performance for measuring the success of the business.
There are different tools for measuring and assessing the financial performance. Among different tools, ratio analysis is one of the widely used tools. This section of the report produces the review of the ratio analysis of two years of the both the companies under consideration. In addition to this, the trend analysis is also produced both horizontally as well as vertically.
Profitability Perspective
The profitability perspective, as the name implies, provides evidence regarding the saving and returns that a business has managed to generate the revenue after meeting all expenses. Analysis also includes the returns after employing assets in business as well as capital. The comparative analysis of the profitability for the two companies is as follows:
The profit margin for the Greene King Plc before interest and tax increased as compared to the past year. Rise in the profit margin or Greene Plc is specifically due the Spirit acquisition (Vaish, 2015). On the other hand, the net profit margin for the company declined due to the finance cost charged for the exceptional items and its related taxes. These taxes include tax credit in the year 2014 while additional tax due to the differences in the rate and adjustment regarding prior and deferred tax items in 2015.
The asset turnover of the company is also significantly higher and has increased considerably over the past years that reflect the positive benefits reaped from the acquisition of Spirit Company. On one side in returns ratios, the returns of the company decreased from £96.1m to £89.3m. One of the reasons for the decline in profits includes exceptional investment in the advisory fees amounting to £15.8m about the acquisition of Spirit Pub. Another exceptional item that reduced the net income includes an impairment charge of around £27.4m as the carrying value of the market hit pubs. This decline is also somewhat offset by the disposal of the 275 pubs to Hawthorn Leisure The difference in the ROE and ROA is mainly due to the addition of the hedging reserves from £116.0 in 2014 to £167.0m in 2015 in total debt (Greene King Plc, 2015).
The Marston’s Plc performance remained under pressure as evident in the ratios. The profit margin (PBIT) was lower in 2014 specifically due to the exceptional charges that the company incurred due to re-organization of business it added £m142.2 in the operating cost (Marston’s Plc, 2015). The net income margin also runs into the negative in the year 2014 due to the finance cost of non-underlying items. Hence, as the business realized those costs the previous year, current year was significantly improved. The returns ratios have though come on the positive side of the quantum; however, it is still significantly lower as compared to the Greene King Plc. The increase in the total assets resulted from the opening of the 25 pub-restaurants as well as the acquisition of beer division of Thwaites’. The acquisition also includes two brands of Wainwright and Lancaster Bomber. The stress of the exceptional items in addition to the lower revenue due to the size of the business is main reasons behind this (Marston’s Plc, 2015).
Hence, on the profitability front, Greene King Plc has a stronger weight.
Efficiency Perspective
The efficiency ratios refer to the management of business operations in the day to day terms. The comparative analysis here presents an interesting situation. Both companies are fast in receiving receivables while taking a significantly long time in making payment. One of this is, of course, the fact that companies are doing retail business. Retail business also asserts the little difference in the inventory turnover days between two companies. However, the account receivable days for Greene King Plc are much lower as compared to Marston’s Plc. It can be reflective of easy credit policy that Marston’s Plc lends to its customers. Such policies are often implemented of the company’s strategies for attracting customers. Marston’s Plc does not take the burden of such delay in receivable from customers. Instead, it passes it on the supplier by immensely stretching the payable period.
Here again, the Greene King Plc has a stronger performance with the capability of quick turnover and fluent receivables.
Liquidity Perspective
The liquidity position of the Marston’s Plc is stronger as compared to the Greene King Plc. Limited inventory does not have a significant impact on the liquidity section. However, despite the improved position as compared to Greene King Plc, both companies have questionable performance. The short term assets of both companies are unable to pay off it's their current liabilities.
Despite having improved liquidity position, the gearing and leverage position of Marston’s Plc is worry-some. It is important to mention here that debt to equity only includes the borrowing section. The other liabilities include derivative financial instruments, post-employment liabilities, and trade and other payables, etc., to name few; further increased the liability section of the business. When accounting for the total liabilities, it is noted that Greene King Plc has around 69% of the total assets. Marston’s Plc also has acquired short term and long term borrowing 1.8 times of the equity. The overall debt of the company accounts 72% of the total assets or capital. Unlike, Greene King Plc that has debt arising from derivative financial instruments, Marston’s Plc’s debt is widely from the borrowing. Both company’s specifically, Marston’s Plc solvency is significantly under threat. It is important for both businesses to control the debt so as to increase ROE.
Investment Perspective
The EPS for the Greene King Plc has as declined due to the exceptional items. However, the company has maintained its trend of a higher dividend. This is reflective of companies believe on its strong future as a result selling non-core pubs and acquisition of the Spirit.
The loss incurred by the Marston’s Plc is reflective in EPS for 2014. However, despite this fact, the company paid the dividend to its investors. It is a signal that company realizes that loss is due to restructuring and reorganization that caused exceptional items losses. The dividend yield for the Marston’s Plc is higher as compared to the Greene King Plc due to the lower price as compared to the Green King Plc (Marston’s Plc, 2015).
Horizontal and Vertical Analysis
Income Statement
The horizontal performance of the Marston’s Plc shows significant improvement as the company has increased its revenue while the notable decline in expenses is reported. The overall profit also rose by 145%. On the other hand, the vertical analysis also shows improvement where revenue’s portion is now adding to the net profit in the year 2015 as compared to the previous year (Marston’s Plc, 2015).
The vertical analysis of the Greene King Plc revealed expansion in the employment cost. Though the company’s revenue is adding to the profit with a reduction in the costs; however, the tax portion of income increased from 0.7% to the 2.20% that reduced the percentage of operating profit. The Horizontal analysis of the income statement of the Greene King Plc showed a rise in the revenue is increased by 1.05% as a result of with the rise in the share of products sold and a decline in the services sector. The year on year percentage of employment cost has also increased with the acquisition of the Sprint Pub. With the gain on sale for the current year, 2014 reported a loss of £ 6.4m. The decline in the borrowing also reduced the finance cost expense (Greene King Plc, 2015). However, the significant impact of tax negatively influenced the profits to the shareholders.
Balance Sheet
Vertically, Greene King Plc increased investment in property plant and equipment accounting to around 66.75% of the total assets as a result of above discussed acquisition. The rise in deferred tax assets has also increased from 1.53% to 1.85% of the total assets. The current assets shared a higher portion of the prepayments from 0.40% (2014) to 0.54% (2015). Despite the decline in the borrowings; however, investment in the financial instruments’ like interest rate swaps increased (Greene King Plc, 2015). Horizontally, the prepayments, both short and long term basis are evident. The decline in the property plant and equipment for sales is an important change from 2014 to 2015 as a result of the successful disposable of non-core strategic pubs. On the liabilities side, 2015 reported a rise in the financial instrument by 198%. On the equity side, hedging reserves rose by 43% that reduced the overall equity (Greene King Plc, 2015).
Vertically and horizontally, the balance sheet for the Marston’s Plc reflects the rise in intangible assets and property plant and equipment as compared to 2015. There was a whopping rise of 49%. The portion of the assets held for sale declined to 0.64% of total assets in 2015 as compared to 1.46% in 2014.Further, derivatives and trade payables portion rose to 0.92% from 0.74% in 2014 and 6.60% from 5.59% in 2014. Due to the loss, the retained earning’s portion of the total asset also declines from 1.81% in 2014 to 1.02% in 2015 (Marston’s Plc, 2015).
SUSTAINABILITY REPORTING
The sustainability reporting refers that a company sheds considerable light on the factors and influence that it produces on the economic, social and other everyday aspects. The overall annual reports for both of the companies are analyzed above and with it, it is can be safely stated that both companies are duly attending the sustainability reporting standards. The annual reports have clearly informed of the financial conduct of the business. The companies have clearly articulated the corporate governance section where audit committee, report and disclosures, details of the board of directors and their responsibilities, and most importantly details about the reports and disclosures (Greene King Plc, 2015 and Marston’s Plc, 2015).
However, both companies have provided the details of the business model, key strategic measures, and financial key performance indicators for analyzing the company’s performance. Risk and related mitigation strategies are also well defined. Once aspect, that is missing from the both the annual reports is the lack of attention to the making business operations green and sustainable. Food and other materials sourcing are a critical to the restaurant and pub business. Furthermore, growing concerns for the climate change are also not attended in the reports.
RECOMMENDATION
Both companies having a strong presence in the UK industry must give attention to the rising challenge of the green environment. The sourcing strategies must be clearly defined with KPI and standards set for the suppliers.
The companies can either add a section to the annual financial report. However, it is advisable that company adds to their reporting structure the sustainability reporting and the sustainability plan.
The GRI sustainability reporting index provides business with a well-defined guideline for the businesses to integrate and implement.
List of References
Eat Out. (2015). Greene King Merger With Spirit Raises Competition Issues In Some Local Areas. Available fromhttp://eatoutmagazine.co.uk/greene-king-merger-spirit-raises-competition-issues-some-local-areas [Accessed on March 23, 2016]
Gerrard, B. (2015). Greene King in good Spirit. Investors Chronicle. Available from http://www.investorschronicle.co.uk/2015/12/02/shares/news-and-analysis/greene-king-in-good-spirit-RoAHIpuIYRXay2maPuTHdP/article.html [Accessed on March 23, 2016]
Greene King Plc. (2015). Annual Report.
IBIS World. (2015). Pubs & Bars in the UK: Market Research Report. Available from http://www.ibisworld.co.uk/market-research/pubs-bars.html [Accessed on March 23, 2016]
Marston’s PLC.(2015). Annual Report. Available fromhttp://services.marstons.co.uk/annualreport2015/projet/multimedia/Full_Annual_Report_2015.pdf [Accessed on March 23, 2016]
Sheffield, H. (2015). George Osborne's National Living Wage to hit youngest workers hardest, campaigners warn. Independent. Available from http://www.independent.co.uk/news/business/news/george-osbornes-national-living-wage-to-hit-youngest-workers-hardest-campaigners-warn-a6875461.html [Accessed on March 23, 2016]
Spence, P. and Martin, B. (2015). Greene King shares fizz after Spirit Pub acquisition and China boosts sales. Telegraph. Available from http://www.telegraph.co.uk/finance/newsbysector/epic/gnk/12028450/Greene-King-shares-fizz-after-Spirit-Pub-acquisition-boosts-profits.html [Accessed on March 23, 2016]
Vaish, E. (2015). Greene King posts bigger profit after Spirit Pub deal. Reuters. Available from http://uk.reuters.com/article/uk-greene-kin-results-idUKKBN0TL0K420151202 [Accessed on March 23, 2016]
Yeomans, J. (2015). Greene King sales climb as it completes Spirit acquisition. Telegraph. Available from http://www.telegraph.co.uk/foodanddrink/pubs/11710034/Greene-King-sales-climb-as-it-completes-Spirit-acquisition.html [Accessed on March 23, 2016]
