Analysis of Financial Performance of Pz Cussons 2012

Topics: Financial ratios, Financial ratio, P/E ratio Pages: 12 (3336 words) Published: March 22, 2013
ANALYSIS OF THE FINANCIAL PERFORMANCE OF PZ CUSSONS PLC AND
RESEARCH MATRIX

Background Information of the Company

PZ Cussons Plc. is a UK based consumer products group. The principal activities of the group are the manufacture and distribution of soaps, detergents, toiletries, beauty products, pharmaceuticals, edible oils, fats, electrical goods and nutritional products. The company’s products can therefore be categorised into personal care, home care, baby care, beauty products, food and nutrition and electrical goods. They have supply chain and distribution networks in Africa, Asia and Europe. Their mission is to enhance the lives of customers with quality, value and innovation. Their vision is to be a growing and dynamic company who are passionate about their leading brands and drive innovation in everything they do.

The company has four major strategies which are operating in selected categories where their brands have a strategic advantage and offering growth opportunities which are profitable; operating in selected geographies either through their own infrastructure or through partnership; operating a flexible and evolving supply chain designed to service their categories and working with people who share their unique CAN DO values. The company’s major competitors are Mcbride Plc., Kao UK Ltd, Creightons Plc., and Swallowfield Plc. (Marketline, 2012).

Interpretation of Financial Statements Using Ratio Analysis

Profitability Ratios
These ratios measure the ability of a company to generate earnings in relation to its sales, assets and equity (Ready Ratios, 2012). 2012 2011

Return on Capital Employed 49.6 = 8.16% 107.3 =16.43% (PBIT/Total Assets-Current liabilities) 930.5 - 322.4 938.5 - 285.6

Return on Equity (ROE) 34.4 = 7.51% 70.4 = 14.85% (Profit after tax/Shareholders’ funds) 458.3 474

Operating Profit Margin 49.6 = 5.77% 107.3 = 13.1% (PBIT/Sales) 858.9 820.7

Gross Profit Margin 309.2 = 40% 325.2 = 39.6% (Gross Profit/Sales) 858.9 820.7

Overheads/Sales 134 + 125.4 = 30% 135 + 83.3 = 26.6% 858.9 820.7

Sales Growth 858.9- 820.7 = 4.65% (Yr 2 Sales- Yr 1 Sales/ Yr 1 Sales) 820.7

The ROE is low 7.51%, down from 14.85% in 2011 which shows that a much lower profit has been made on the shareholders’ investments. This is largely due to the decrease in profits for the year. The reduction in profit has also impacted on the ROCE which is down to 8.16% from 16.43% in 2011. There is a marginal increase in the gross margin. This is as a result of an increase in the cost of sales which could have been affected by the rise in costs of raw materials as pointed out in the Chairman’s statement and offset by a small 4.65% increase in sales. The operating profit to sales has reduced drastically, as a result of a high increase in overheads and the revenue increase. The increase in overheads was due to exceptional items related to administrative expenses. From the annual report, it can be seen that there was a supply chain optimisation project initiated to tackle rising material costs, wage inflation in emerging markets and to reduce overheads of manufacturing activities. This project is an exceptional item...
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