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The supermarket and retail industry in the United Kingdom can be considered as one of the main contributors to the country’s economy as it accounts for approximately 20% of the UK’s GDP. The main players of the supermarket and grocery industry consist of four large organizations namely Tesco which is the market leader, Asda, Sainsbury and Morrison’s. Morrison’s Supermarket chain was built by William Morrison its founder in 1899. From its humble beginning, Morrison’s has grown rapidly in both the size of the company and its offerings, and currently is among the big four of the supermarket industry (Mintel, 2014). The company currently holds a 10.5% share of the UK grocery market which makes it the smallest company of the four leaders. Tesco the market leader accounts for a 27.6% share of the market, Sainsbury’s and Asda hold 15.9% and 15.5% respectively. As retail chain that with a history beyond a century Morrison’s operate with 491 supermarkets and 17 manufacturing sites. Morrison’s for the most part operated in Northern England but in recent years has made efforts to expand its reach to the southern parts of the country. The mission statement of the company focuses at keeping things simple. The beliefs and values embedded in the company is what make Morrison’s remain competitive. Its values like trying harder than anyone else and using their scale and expertise for good are embedded to all levels of the business (Mintel, 2016). Unlike its competitors like Tesco which has expanded its reach around the world including North America, Asia and the rest of the Europe, Morrison’s operates entirely in the UK market.

Industry Analysis

Porter’s Five Forces

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  • Rivalry among Existing Players – High

There is a tremendously high competition among the companies operating in the UK supermarket industry. With a few large companies like Morrison’s, Tesco, Asda, Waitrose and Sainsbury it is difficult for smaller companies to gain market share. The three big players possess a threat to Morrison’s given their size and financial potential. The requirement of high capital investments in the supermarket industry poses certain exit barriers and this makes the competition even more concentrated (Pride and Ferrell, 2003). Due to the low switching cost of customers companies are always on the look out to attract customers from other companies using various promotional activities (Grant and Jordan, 2012). In addition as the growth rate of the market slows down with the industry maturing the profit margins are bound to go down. The generic products sold in supermarkets are at a low level in terms of differentiation therefore most companies look to a cost leader approach to attract customers and compete via price. Other than that advancements in technology have made it much easier for customers to get information about products and services and now are with more sophisticated needs making things more difficult.

  • Threat of New Entrants – Low

The retail market in UK is mainly dominated by a few giant companies who account for almost 75% of the market share while the rest is possessed by small retail chains. High initial cost and intense competition in the sector limits the number of new firms entering the industry (Hiller et al, 2012). Most of retail giants have built their power around economies of scale and operating efficiencies. Due to this the grocery market in UK is being renovated in to an industry dominated by supermarket chains. For these reasons there are strong barriers for companies that wish to inter in to the retail business. Apart from the barriers faced in raising funds to facilitate large fixed costs involved in the industry, new entrants are also facing difficulties in developing efficient supply chains (Jonathan, 2010). Existing companies are also moving towards innovation and differentiation making it more difficult for new entrants to enter the market. In addition strong brand names have resulted in existing companies capturing a loyal customer base making the threat on new entrants in the retail market relatively low.

  • Bargaining Power of Buyers – High

As customers have a number of options and since their switching cost is low customers have a high bargaining power. Consumers also have greater access to information about the services provided by different companies allowing them to make better comparisons which increases the risk of losing market share. In the retail industry customers require products which are of good quality and also at low prices (Jones, 2008). Hence the companies have to come up with ideas to bring down the cost without compromising in the quality. Furthermore the generic nature of retail products gives more power to buyers. Consumers are also becoming more aware of ethical practices of companies and the effect they have on the environment. Besides that customers are conscious about fair trade practices of organizations.

  • Bargaining Power of Suppliers – Moderate

As a result of the large scale of its operations Tesco, Asda and Sainsbury works with many suppliers and has a low switching cost resulting in lesser dependence in one particular supplier (Owen, 2003). The profits of suppliers are majorly influenced by the operations of leading retail companies and therefore suppliers do not desire to lose their business with companies like Tesco and Sainsbury. Morrison’s on the other hand given its smaller stature doesn’t exercise similar control over its suppliers. However a factor that limits the bargaining power of suppliers is that the products and services provided by Morrison’s suppliers lack uniqueness. Apart from that the growing capability of large companies in sourcing products from abroad at cheaper prices is threatening UK based suppliers. The rivalry between firms has reduced profit margins of suppliers.

  • Threat of Substitutes – Moderate

In the grocery market substitution can be witnessed in two forms. It can either be product based substitution or the substitution of consumer need. There is a trend towards small convenient store chains emerging in the retail market which could pose as a threat to large companies like Tesco (Stoner and Freeman, 2009). However the shift in consumer behavior towards one-stop shopping it reducing the impact small convenient stores. Furthermore as a solution to this increasing threat large companies like Tesco and Asda have adopted a strategy to acquire small scaled businesses. For instance Morrison’s occupied Safeway superstores to improve its market position. However smaller authorized chain store systems could become a considerable threat in the future given its increasing popularity. To cope with the threat of small convenient stores large companies have extended their services to remote areas by opening up more and more stores.

 

PESTEL Framework

SWOT Analysis

Ratio Analysis

Ratio analysis will allow Morrison’s to assess its financial statements and can be used to compare with the results of previous years, close competitors and industry ratios (Gibson, 2012).

Profitability Ratios

Profitability ratios are an indication of the margins earned by the company and its ability to cover costs and yield a profit (Brigham and Erhrardt, 2001).

Morrison’sSainsbury
2013201420152016201720132014201520162017
GP margin = Gross Profit / Sales ×1006.7%6.1%4.5%3.8%3.7%5.5%5.8%5.1%6.2%6.2%
OP margin = Operating Profit / Sales ×1005.2%-0.5%-4.1%1.9%2.9%3.8%4.2%0.3%3.0%2.4%
NP margin = Net Profit / Sales ×1003.6%-1.3%-4.5%1.4%1.9%2.6%3.0%-0.7%2.0%1.4%
AE margin = Admin Expenses/Sales ×1001.9%7.1%9.9%2.9%1.5%2.0%1.9%4.8%3.6%4.6%

The gross profit margin of Morrison’s has been on a downward trend in the last five years as the last few years have been challenging for the company due to stiff competition among grocery retailers. Sainsbury in comparison has been able to bounce back from a small set back in 2015 due to its greater size. However when it comes to operating profit margins Morrison’s have outperformed its competitor significantly considering more than 75% of the gross profit has been transformed in to operating profit whereas only 40% of the gross profit of Sainsbury accounts for its operating profit (Dyson, 2010). Morrison’s show similar efficiency in the net profit margin as well. This was possible as a result of greater operating cost controls which are demonstrated by the considerable drop in administrative expense margin from 9.9% to 1.5%. It indicates that Morrison’s employed a more stringent cost control mechanism compared to Sainsbury.

Morrison’sSainsbury
2013201420152016201720132014201520162017
ROE = Net Profit / Total Equity ×10012.4%-5.1%-21.2%5.9%7.5%10.3%11.9%-3.0%7.4%5.5%
ROA = Net Profit / Total Assets ×1006.1%-2.2%-8.3%2.4%3.3%4.7%4.3%-1.0%2.8%1.9%

Return on equity ratio is an indication of the company’s ability to generate profits using the investment of owners (Baker and English, 2011). While the return on investment ratios of both companies suffered a setback in 2015, Morrison’s have recovered its Return on Equity gradually in the following two years whereas Sainsbury once again suffered a loss in 2017. This capitalization must be continued by Morrison’s in the coming years in order to gain shareholder confidence. Similarly the Return on Assets ratio of Morrison’s showcases the company’s ability to use its assets to generate profits.

Liquidity Ratios

Liquidity ratios show whether the company can meet its short term liabilities without having to sell its fixed assets (Warren, 2013). It also displays how quickly the organization can convert its current assets to cash.

Morrison’sSainsbury
2013201420152016201720132014201520162017
Current Ratio = Current Assets Current Liabilities0.570.500.540.480.410.610.650.650.660.74
Acid test Ratio = (Current Assets – Inventory)

Current Liabilities

0.240.200.250.250.200.290.500.490.510.53

The liquidity position of Morrison’s is noticeably less than adequate bearing in mind the industry standard current ratio is close to 0.7. If this deficiency remains Morrison’s will have to sell its fixed assets to settle its current liabilities. Sainsbury on the other hand have managed to maintain a liquidity position in line with the industry norm. Therefore Morrison’s must improve its liquidity position in order to carry out its operations effectively. Furthermore the acid test or quick ratio measures whether the company is able to settle its short-term liabilities without relying on inventory (Garison, 2000). It is also lower than the industry average of 0.6. As a result, Morrison’s has much to do if there are to improve their liquidity levels.

Efficiency Ratios

The aptitude of a firm to make use of its assets is measured by efficiency ratios (Arnold, 2008). For instance the stock turnover ratio appraises the firm’s talent in managing stocks. In the same way receivables turnover and the payables turnover are computed to weigh up the techniques employed to maintain receivables and payables.

Morrison’sSainsbury
2013201420152016201720132014201520162017
Inventory Turnover = Cost of Sales Inventory21.719.524.425.225.622.322.422.622.813.9
Inventory Days = Inventory × 365 Cost of Sales16.918.715.014.514.316.416.316.116.026.3
Receivable Turnover = Sales Receivables62.355.970.484.076.276.255.350.546.345.7
Receivable Days = Receivables × 365 Sales5.96.55.24.34.84.86.67.27.98.0
Payable Turnover = Cost of Sales Payables7.97.37.26.25.58.18.47.67.26.6
Payable Days = Payables × 365 Cost of Sales46.049.950.559.365.945.243.647.950.955.5
Cash Conversion = Inventory Days+ Receivable Cycle Days- Payable Days-23.3-24.7-30.3-40.4-46.9-24.0-20.7-24.5-27.0-21.2

Inventory turnover days have been somewhat steady but 14 days is slightly high considering the lifespan of the food products of the company. In order to keep food and other non durable grocery products fresh the company must rotate inventory more often. However durable household products like electronics are much likely to remain in inventory for a longer period. Nevertheless in comparison to Sainsbury the inventory management techniques of Morrison’s seem to be working rather effectively (McLeaney, 2009). Similarly Morrison’s have managed to control receivable days whereas the 8 day receivable period of Sainsbury is a quite high debtor period considering the company is a supermarket where most transactions happen in the form of cash. The payables days’ ratio reveals that both companies pay their suppliers after they collect payments from receivables. For this reason the company has been able to make regular payments to its suppliers. Furthermore the indulgent credit policies of the creditors have made Morrison’s more liquid. The negative cash conversion cycle is an indication that the short term assets of the company are managed efficiently (Drury, 2008). In contrast to a negative cash flow, a negative cash conversion cycle is especially advantageous as it denotes Morrison’s only pays for the material once the finished goods are sold.

Morrison’sSainsbury
2013201420152016201720132014201520162017
Total Asset Turnover = Sales Total Assets1.71.61.81.71.81.81.41.41.41.3
Fixed Asset Turnover =

Sales Fixed Assets

2.01.92.12.02.02.22.32.01.92.0

How well the company deploys its assets to generate revenue can be measured by turnover ratios (Pike and Neale, 2009). In other words asset utilization capacity of the company is evaluated by asset turnover ratios. Both total asset turnover and fixed asset turnover has been fairly constant during the period.

Capital Structure Ratios

Debt management ratios evaluate how the firm is planning to pay off its noncurrent liabilities (Ross, 2012). Capital structure ratios are calculated to evaluate the external fund management of the company. The capital structure displays how the company is financed through creditor’s debt and shareholder’s equity capital. A lower debt to equity ratio and debt to asset ratio implies a more financially stable business with less risky creditors (Watson and Head, 2007). Financial risk of the company is very low as it has financed more from equity.

Morrison’sSainsbury
2013201420152016201720132014201520162017
Debt to Assets Ratio =

Long-term Debt Total Assets × 100

0.280.290.360.300.250.290.230.250.230.22
Debt to Equity Ratio =

Long-term Debt Total Equity× 100

0.570.670.920.740.570.640.630.740.610.62
Interest Cover = Operating Profit Finance cost12.65-1.09-6.632.802.935.766.350.454.234.72

A debt to asset ratio below 1 indicates the low level of risk f by credit and faced by the fund providers of the company (Brealey, 2012). The hike in the debt to equity ratio in 2015 is a result of reduction in the shareholder equity due to the loss incurred that year. Apart from years 2014 and 2015 which recorded negative operating profits, Morrison’s has been maintaining an adequate interest cover.

Investor Ratios

Investor ratios measure the ability of Morrison’s to provide an adequate return for its owners (Atrill and McLeany, 2013). The owners of the company who has invested their funds in the operations of the business will expect a certain rate of return for the risk that they face.

Morrison’sSainsbury
2013201420152016201720132014201520162017
Earnings per share = Net Income Average Outstanding Shares0.27-0.10-0.330.110.150.310.36-0.080.220.18
Dividends per share = Dividend Paid Average Outstanding Shares0.110.120.130.130.060.160.160.170.110.11

EPS of Morrison’s took a drastic drop in 2015 compared to Sainsbury but it has managed to recover in the following years. Form the dividend per share calculation it can be said that the company followed a constant dividend policy up to 2016 but reduced the DPS in 2017 in line with its new dividend policy which requires the dividend to be covered twice by the underlying EPS (Gowthrope, 2005).

Limitations of Ratio Analysis

Percentage Analysis

In Percentage analysis the figures in the financial statements are converted in to percentages using a common base. This can be carried out in two main methods namely horizontal analysis and vertical analysis (Berry and Jarvis, 2005). Horizontal analysis, also known as trend analysis is a financial analysis tool that is made use of to identify changes in financial statement items over time. In contrast Vertical analysis, otherwise known as common size statements presents figures as a percentage of a base figure. For example in the statement of financial position, the total assets figure is considered 100% and all other figures are expressed as a percentage of the base.

Horizontal Analysis

The horizontal analysis on the financial statements indicates that there has been a continuous reduction in revenue until 2017 which saw a slight increase. One significant change is the decrease in administrative expenses which was almost cut in half in 2017 compared to the previous year. While the gross profit was in a constant downturn during this period the company managed to recover operating profit and net profit showcasing greater control of costs. The change in non-current assets of 24% over the five years is more likely financed through non-current liabilities which increased by 15%. The drop in equity was mainly due to losses incurred in the middle years.

Vertical Analysis

Vertical analysis or common size statement analysis displays each item on the financial statement as a percentage of another item. This type of analysis is most commonly employed for a single period to analyze the relative proportions of accounting items. However it can also be useful for a timeline analysis on a comparative basis (Van Horne and Wachowicz, 2005). A vertical analysis is best at use when changes are compared with other connected accounts rather than in isolation. For example an increase in sales or assets gives very little information. What the company should try to figure out is what prompted the increase in sales or how the company utilized increased assets to earn profits. The vertical analysis shows a slight increase in non-current liabilities. A majority of the newly obtained funds are equally invested in fixed and current assets.

Recommendation

Based on the analysis it is recommended to invest in Morrison’s. Even though the profitability of the company was questioned in 2014 and 2015 Morrison’s quickly recovered from that position showing their capability in generating profits compared to Sainsbury which is behind in terms of cost control. However more attention must be given to controlling cost of sales of the company. In terms of the liquidity, Morrison’s is somewhat behind the industry norm. A unique feature of retail organizations is their ability to produce a negative cash conversion cycle. This desirable feature of Morrison’s means it first collects its receivables and then only pays its creditors. This is how they managed to make regular payments to suppliers and it is also how they granted longer credit terms from suppliers. The lower gearing level of the company has reduced its financial risk and has made the company more attractive to potential investors. The new dividend policy of Morrison’s takes profitability in to account when paying dividends and this provides a solution to the drawback of the previous stable dividend policy in which investors expect dividend payments to carry on in the same trend indefinitely.

Conclusion

In conclusion even though Morrison’s has maintained its position as one of the leading companies in the UK retail market and is outperforming its competitors Sainsbury in areas like profitability, cost control and efficiency. Its main competitors Tesco, Asda, and Sainsbury are equipped with similar resources making it quite tricky for Morrison’s to differentiate itself. Therefore rather than expanding their domestic reach more emphasis should be given to entering international markets.

References

Arnold, G. (2008), Corporate Financial Management, London: Pearson Education Limited

Atrill, P. and McLaney, E. (2013), Accounting and finance for non-specialist, Harlow: Prentice Hall

Baker, H. K. and English, P. (2011), Capital budgeting valuation: Financial analysis for today’s investment projects, Hoboken, N.J: Wiley

Berry, A. and Jervis, R. (2005), Accounting in Business context, Hampshire: Cengage Learning

Brealey, R. A. (2012), Principles of corporate finance, Tata McGraw-Hill Education

Brigham, E. and Erhrardt, M. (2001), Financial management: Theory and Practice, Cengage Learning

Brigham, E. and Houston, J. (2011), Fundamentals of financial management, Cengage Learning

Drury, C. (2008), Management and cost accounting, Pearson Education Limited

Dyson, J. R. (2010), Accounting for non-accounting students, Pearson Education Limited: England

Fridson, M. S. and Alvarez, F. (2011), Financial statement analysis: a practitioner’s guide, John Wiley & Sons

Garison, R. H. and Eric W. N. (2000), Managerial Accounting, Mc Graw-Hill Companies Inc

Gibson, C. H. (2012), Financial Reporting and Analysis, Ontario: South-Western Pub.

Gowthrope, C. (2005), Business Accounting and Finance for Non Specialist, Bedford: Thomson Learning

Grant, R. M. and Jordan, J. J. (2012), Foundation of Strategy, John Wiley and Sons

Hall, D., Jones, R., Raffo, C., Anderton, A., Chambers, I., and Gray, D. (2010), Business Studies, 4th Ed, London, Pearson Education

Hillier, D., Grinblatt, M. and Titman, S. (2011), Financial markets and corporate strategy, McGraw Hill

J Sainsbury’s (2013), Annual Report and Financial Statements 2013 [Online], J Sainsbury’s plc, Available from: http://www.jsainsbury.co.uk/media/649393/j_sainsbury_ara_2013.pdf [Accessed 4th May 2018]

J Sainsbury’s (2014), Annual Report and Financial Statements 2014 [Online], J Sainsbury’s plc, Available from: http://www.jsainsbury.co.uk/media/649393/j_sainsbury_ara_2014.pdf [Accessed 4th May 2018]

J Sainsbury’s (2015), Annual Report and Financial Statements 2015 [Online], J Sainsbury’s plc, Available from: http://www.jsainsbury.co.uk/media/649393/j_sainsbury_ara_2015.pdf [Accessed 4th May 2018]

J Sainsbury’s (2016), Annual Report and Financial Statements 2016 [Online], J Sainsbury’s plc, Available from: http://www.jsainsbury.co.uk/media/649393/j_sainsbury_ara_2016.pdf [Accessed 4th May 2018]

J Sainsbury’s (2017), Annual Report and Financial Statements 2017 [Online], J Sainsbury’s plc, Available from: http://www.jsainsbury.co.uk/media/649393/j_sainsbury_ara_2017.pdf [Accessed 4th May 2018]

Jonathan, B. (2010), Financial Management, Pearson Education

Jones, M. (2008), Accounting for Non-specialists, New Jersey: Pearson Prentice Hall

Lesakova, L. (2007), “Uses and Limitations of Profitability Ratio Analysis in Managerial Practice”, International Conference on Management, Enterprise and Benchmarking

McLaney, E. (2009), Business Finance: Theory and Practice, London: Pearson Education Limited

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Mintel, (2016), “Supermarkets – UK – February 20016”, Mintel Market Intelligence, London

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Appendices

Appendix 1

Financial Statements of Morrison’s

Statement of Comprehensive Income20132014201520162017
£m£m£m£m£m
Revenue18,11617,68016,8161612216317
Cost of sales-16,910-16,606-16,055-15505-15713
Gross profit1,2061,074761617604
Administrative expenses-336-1,259-1,670-472-244
Other income7990213169108
Operating profit949-95-696314468
Finance income5571315
Finance costs-75-87-105-112-160
Share of post–tax profit from joint ventures1222
Profit before taxation879-176-792217325
Income tax expense-232-62315-20
Profit for the financial period647-238-761222305
Total other comprehensive (expense)/income for the financial period (net of tax)-102-32202105
Total comprehensive income for the financial period637-236-793424410
Statement of Financial Position20132014201520162017
£m£m£m£m£m
Non–current assets
Property, plant and equipment8,6168,6257,25271617227
Intangible assets415458520483445
Investments in subsidiaries123119683733
Investments in joint ventures66686356
Pension assets4186293
Other receivables31
Derivative financial instruments3131313016
9,1859,2997,94379918070
Current assets
Inventories781852658616614
Trade and other receivables291316239192214
Derivative financial instruments5161222
Cash and cash equivalents265261241496326
1,3421,4301,14413161176
Non-current assets classified as held-for-sale84
1,3421,4301,22813161176
Total assets1052710,7299,17193079246
Equity
Called up share capital235234234234234
Share premium account107127127127128
Capital redemption reserve3739393939
Merger reserve25782578257825782578
Retained earnings2,27317146167781084
Total equity52304692359437564063
Non–current liabilities
Borrowings2,3962480250820031550
Derivative financial instruments3650555
Deferred income tax liability471430415429417
Provisions76201288309326
Retirement benefit obligations20114321
2,9633164330427962319
Current liabilities
Trade and other payables2,1302,2722,22125182837
Borrowings5553511209
Derivative financial instruments1018173
Taxes payable14938231124
2,3342873227327552864
Total Equity and Liabilities1052710729917193079246

Appendix 2

Financial Statements of Sainsbury

Statement of Comprehensive Income20132014201520162017
£m£m£m£m£m
Revenue23,30323,94923,77523,50626,224
Cost of sales-22,026-22,562-22,567-22,050-24,590
Gross profit1,2771,3871,2081,4561,634
Administrative expenses-462-444-1,132-850-1,207
Other income67665101215
Operating profit8821,00981707642
Finance income1920191934
Finance costs-153-159-180-167-136
Share of post–tax profit from joint ventures24288-11-37
Profit before taxation772898-72548503
Income tax expense-170-182-94-77-126
Profit for the financial period602716-166471377
Total other comprehensive (expense)/income for the financial period (net of tax)-229-281-29101-292
Total comprehensive income for the financial period373435-19557285
Statement of Financial Position20132014201520162017
£m£m£m£m£m
Non–current assets
Property, plant and equipment980498809648976410,006
Intangible assets171286325329742
Investments in subsidiaries
Investments in joint ventures532404359327237
Available–for–sale financial assets189255184340435
Other receivables38268310369
Amounts due from Sainsbury’s Bank customers1,292141216491,916
Derivative financial instruments4728211710
Deferred income tax asset
1078110308120321252913,415
Current assets
Inventories98710059979681,775
Amounts due from Sainsbury’s Bank customers159916952,686
Trade and other receivables306433471508574
Available–for–sale financial assets48100
Derivative financial instruments9149695194
Cash and cash equivalents5171592128511431,083
19014362442144136,312
Non–current assets held for sale137843110
19144369450544446,322
Total assets1269516540165371697319,737
Equity
Called up share capital541545548550625
Share premium account10751091110811141120
Capital redemption reserve680680680680680
Other reserves140129146155193
Retained earnings34023560305738663438
Merger reserve568
Total equity58386005553963656872
Non–current liabilities
Amounts due to Sainsbury’s Bank customers302266582304
Other payables173204265269637
Borrowings26172250250621902039
Derivative financial instruments421386938
Deferred income tax liability277227215237172
Provisions392977129128
Retirement benefit obligations632737708408974
37423770407538844292
Current liabilities
Trade and other payables27262692296130773,741
Amounts due to Sainsbury’s Bank customers339531734,284
Borrowings165534260223172
Derivative financial instruments6565754322
Taxes payable148189188158219
Provisions11404446135
31156765692367248573
Total Equity and Liabilities12,69516,54016,53716,97319,737

Appendix 3

Horizontal Analysis

Statement of Comprehensive Income20132014201520162017
£m£m£m£m£m
Revenue100%98%93%89%90%
Cost of sales100%98%95%92%93%
Gross profit100%89%63%51.2%50%
Administrative expenses100%375%497%140%73%
Other income100%114%270%214%137%
Operating profit100%-10%-73%33%49%
Finance income100%100%140%260%300%
Finance costs100%116%140%149%213%
Share of post–tax profit from joint ventures100%100%200%200%200%
Profit before taxation100%-20%-90%25%37%
Income tax expense100%27%-13%-2%9%
Profit for the financial period100%-37%-118%34%47%
Statement of Financial Position
20132014201520162017
Non–current assets£m£m£m£m£m
Property, plant and equipment100%100%84%83%84%
Intangible assets100%110%125%116%107%
Investments in joint ventures100%97%55%30%27%
Derivative financial instruments100%100%100%97%52%
100%101%86%87%88%
Current assets
Inventories100%109%84%79%79%
Trade and other receivables100%109%82%66%74%
Derivative financial instruments100%20%120%240%440%
Cash and cash equivalents100%98%91%187%123%
100%107%85%98%88%
Total assets100%107%92%98%88%
Equity
Called up share capital100%100%100%100%100%
Share premium account100%119%119%119%120%
Capital redemption reserve100%105%105%105%105%
Other reserves100%100%100%100%100%
Retained earnings100%75%27%34%48%
Total equity100%90%69%72%78%
Non–current liabilities
Borrowings100%104%105%84%65%
Deferred income tax liability100%91%88%91%89%
Provisions100%264%379%407%429%
Retirement benefit obligations100%55%215%0%105%
100%101%109%104%115%
Current liabilities
Trade and other payables100%107%104%118%133%
Borrowings100%973%20%380%0%
Taxes payable100%26%15%7%16%
100%123%97%118%123%
Total Equity and Liabilities100%102%87%88%88%

Appendix 4

Vertical Analysis

Statement of Comprehensive Income20132014201520162017
£m£m£m£m£m
Revenue100.0%100.0%100.0%100.0%100.0%
Cost of sales93.3%93.9%95.5%96.2%96.3%
Gross profit6.7%6.1%4.5%3.8%3.7%
Administrative expenses1.9%7.1%9.9%2.9%1.5%
Other income0.4%0.5%1.3%1.0%0.7%
Operating profit5.2%-0.5%-4.1%1.9%2.9%
Finance income0.0%0.0%0.0%0.1%0.1%
Finance costs0.4%0.5%0.6%0.7%1.0%
Share of post–tax profit from joint ventures0.0%0.0%0.0%0.0%0.0%
Profit before taxation4.9%-1.0%-4.7%1.3%2.0%
Income tax expense1.3%0.4%-0.2%0.0%0.1%
Profit for the financial period3.6%-1.3%-4.5%1.4%1.9%
Statement of Financial Position20132014201520162017
£m£m£m£m£m
Non–current assets
Property, plant and equipment82%80%79%77%78%
Intangible assets4%4%6%5%5%
Investments in joint ventures1%1%1%0%0%
Derivative financial instruments0%0%0%0%0%
87%87%87%86%87%
Current assets
Inventories7%8%7%7%7%
Trade and other receivables3%3%3%2%2%
Derivative financial instruments0%3%3%2%2%
Cash and cash equivalents3%0%0%0%0%
13%2%3%5%4%
13%13%12%14%13%
Total assets100%100%100%100%100%
Equity
Called up share capital2%2%3%3%3%
Share premium account1%1%1%1%1%
Capital redemption reserve0%0%0%0%0%
Other reserves24%24%28%28%28%
Retained earnings22%16%7%8%12%
Total equity50%44%39%40%44%
Non–current liabilities
Other payables
Borrowings23%23%27%22%17%
Deferred income tax liability4%4%5%5%5%
Provisions1%2%3%3%4%
Retirement benefit obligations0%0%0%0%0%
36%35%44%42%46%
Current liabilities
Trade and other payables20%21%24%27%31%
Borrowings1%5%0%2%0%
Derivative financial instruments0%0%0%0%0%
Taxes payable1%0%0%0%0%
22%27%25%30%31%
Total Equity and Liabilities100%100%100%100%100%