Introduction
Eurasian Natural Resources Corporation PLC (ENRC) is diversified group of companies that operates in the following major portfolios; integrated mining activities, processing, power generation, logistics and finally marketing. ENRC’s mission is “to achieve growth as a leading natural resources business, unlocking resources for our customers and unlocking value for our shareholders.” As such most of the company’s managerial as well as operational strategies are directed towards meeting the aforementioned mission statement. In addition to this, it must be mentioned that given the diversified nature of the firm’s portfolio, it is clearly beyond reasonable doubt that the ENRC is multinational corporation and therefore operates in a much diversified business environment which differs to country. The scope of the paper shall be limited to a pitch book analysis of the firm. This shall include among other things financial analysis for the last five fiscal years, financial projection for the next five fiscal years, and calculation of the company’s worth. Below is a brief overview of the company that serves to add more weight to the key objective of this pitch book analysis.
Background Information
As earlier mentioned, ENRC is a multinational corporation with a diversified business portfolio. The production assets of the company are mainly located in Republic of Kazakhstan, Russia, China, the Democratic Republic of the Congo and Brazil. These production plants of course reflect all six key business segments of the firm which include Ferroalloys, Iron Ore, Alumina and Aluminium, Energy, Logistics and Other Non-ferrous activities. The core obligation to the firm is to its shareholders and as a result a greater portion of this segment shall highlight this fact. In addition to this, given the firm’s nature of business, ENRC has had to acquire and merge with other firms of interest to the company’s long term objectives and goals. In fact, this is the only reason why the company’s strong financial standing is has been consistent over the last five years.
In less than two decades, ENRC has strategically positioned itself to become one of the largest and the fastest growing conglomerate of natural resources producing companies. Based on this premise, it thus follows that the company has a strong and consistent financial standing. This section comprises of a brief overview of the past five fiscal years beginning with the year 2007 and ending with the year 2012. To begin with, ENRC’s fiscal year begins on January 1st and closes on December 31st of every calendar year. Secondly, despite that the fact ENRC does business in many countries, the company’s currency of choice is the US dollar and as a result all it s financial computations are done in this denomination.
A brief overview of the company’s financial statement for the year ended 31st December 2007 reveal the following. The company posted a revenue of $4,106million (this represented a 26% increase from the previous financial year), a profit before tax of $1,321million (this showed a 36% increase), an after tax profit of $814million (this increased by 19%), an EPS of $0.79 (reflecting a 44% increment), EBITDA before exceptional items of $1,906million (which grew by 52%) and finally EBITDA before exceptional items margin of 46% which posted a 7%. This implies that the company generally experienced outstanding growth in the financial year ended December 31st 2007. In addition to this, the company was also able to reduce its operational costs a strategy that was consequently implemented over the next four financial years. On the other hand, the company’s financial standing was stronger in the year 2008 compared to 2007. This is a commendable fete given that world had just been hit by a global economic recession. A summary of the firm’s financial performance in the year 2008 reveals the following; revenue increased by 66% to $6,823million, the pretax profit posted a 190% increase to $3,827million, the after-tax profit also showed a 230% increase to $2,684million, the EPS increased by a phenomenal 160% to $205cents, the underlying EBITDA grew by 117% to $4,161million and finally the underlying EBITDA margin grew by 14% points to 61%. These financial results were extremely important given that they were the first for the firm as a listed company.
However, by the end of the 2009 fiscal year, the impacts of the global financial recession finally caught up with the firm and therefore ENRC performed dismally financially. For instance the revenue declined to $3,831million, the pre-tax profits plunged to $1,439million, and finally the after-tax profit reduced to $1,062million. This poor financial performance can also be attributed to the fact that ENRC partook in key mergers and acquisition in the financial year which include those of Shubarkol Komir JSC, Shubarkol Komir JSC, and Shubarkol Komir JSC among others. The dismal performance of the company forced its management and shareholders back to the drawing and therefore strategies to increase production and recover lost portions of its market share from competitors. As a result of this, the company posted exceptional performance in the 2010 fiscal year. Specifically, the revenue increased by 72% to $6,605million, EPS increased by 110% to $170cents, pre-tax profit increased to 2,977million, after-tax profit increased to $2,197million, the underlying EBITDA grew $3,194million and finally the underlying EBITDA margin increased by 10% point to 48%. It must however be mentioned that the figures posted were a pale shadow of those posted in the year 2008 whereby the company’s financial performance was the strongest.
Finally, in the year 2011, ENRC showed a remarkable improvement in its financial performance. This was mainly attributed to the fact the market forces had stabilized and therefore were not driven by bubble effect factors like it was the case in the year 2010. However, it must be mentioned that the revenue performance in the 2011fiscal year was stronger than that posted in the 2008 financial and therefore represents the company’s best standing so far throughout history. Specifically, the revenue increased to $7,705million, the pre-tax profit reduced to $2,755million, the after-tax profit also decreased to $1,987million, the underlying EBITDA increased to $3,413 and finally the underlying EBITDA margin 3.9% points to 44.3%. The mixed fortunes were as a result of increases in the production and the turbulence of most economies in Europe and America.
Financial Projections (Pro forma Model for 2012-2017)
Based on the above, financial analysis, the following are evident. ENRC will always post a strong financial performance in any fiscal year. This is the case because the firm has a highly diversified business portfolio and tried and tested management as well as operational strategies that have throughout history. As such, the attached financial projections of the firm reflect this strong financial position. However, it must be mentioned that there is a slight deviation from the norm. Unlike in the past whereby dismal performance has always been followed by a strong comeback, in the year 2012 it is projected that that the financial performance shall decrease. This can be attributed to the key mergers and acquisitions that the company partook in to solidify its grasp on the market share. In the subsequent three financial years after 2012, it is projected that ENRC shall experience phenomenal growth. Though it is significant to point out that this shall be characterized by minor fluctuations here and there as far as the financial performance of key performance indicators are concerned.
The expected growth in the next three financial years i.e. 2013, 2014 and 2015 can be best described by the following key factors. First and foremost, the strategic mergers and acquisition specifically conducted in the years 2011 and 2012 will finally begin to bear fruit. This implies there shall be an overall increase in both production and market share thereby cementing the company’s competitive advantage. Secondly, the global economic environment would stabilize. This is especially significant for ENRC given it is a multinational corporation. Indicators of such a scenario in the current economic include the increase in bail outs from stronger economies, the reduction in the global unemployment rate and the exponential increase in disposable incomes especially in the developing world. Finally, throughout history, ENRC has proven over and over again that the firm can always formulate effective strategies to counter dismal performance. Normally, these strategies are usually effective for a period of three years but it is projected that this time round this shall be for three consecutive financial years. This is because economic growth shall be experienced in both the West and the East, a factor that shall stimulate financial growth of the conglomerate. Comprehensive information on the projected financial standing can be found in the attached excel sheets.
However, it is projected that the company shall perform dismally in 2016 for the following key reasons. First and foremost the strategies implemented in the year 2013 to stimulate growth would have become obsolete by then. This shall therefore call for new strategies a scenario which the management and the entire ENRC fraternity shall rise to the occasion as usual. Secondly, the exponential increase in the company’s liabilities coupled with the debt situation shall have gotten out of hand by then .this shall call for a change in fiscal strategies. Finally, threat from competitors shall increase given the rate of liberalization of major markets in the world and therefore ENRC shall not enjoy the dominance state for long. Though, in 2012, it is projected that the company shall bounce back as it has always done in the past.
References
Aldridge, S. (2003). Financial Management, Fresh start. Financial Management Magazine, 2-3.
Copeland, Tom, Koller, Tim, and Murrin, Jack, (1996). Valuation - Measuring and Managing the Value of Companies, Wiley.
ENRC. (2012, October 23). Financial & Operational Reports Retrieved from: www.enrc.com/investors/financial-operational-reports
Simon, B., & Benjamin, C. (2008). Financial Modeling By Simon Benninga, Benjamin Czaczkes. MIT Press (MA).
