Financial Analysis (Case Study Sample)

DIAGEO PLC COMPANY
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DIAGEO PLC COMPANY
Company Summary
Diageo PLC Company was incorporated in October 1886 and is engaged in international manufacture of premium drinks. It deals with a wide range of brands inclusive of brands like Johnnie Walker, Crown Royal, J&B, Windsor, Buchman’s and Bush-mills whiskies, Smirnoff, Ciroc, and Ketel One vodkas, Baileys, Captain Morgan, Jose Cuervo and Guinness. These brands and many more are classified as spirits, beer, wine and ready to drink. The firm's business is structured in Europe, Africa, North America, Latin America, the Asian Pacific and the the Caribbean. Diageo boasts of selling its products in over 180 markets all over the world (Neely, 2002).
It has a strong team of roughly 36000 employees, constituent of a diverse workforce working towards the growth and nurture of their business and brands. Contributions made towards giving deeper insights on consumer needs and enhanced relationships with their stakeholders have been attributed to the different backgrounds of these colleagues. With a market capitalization of 79.45 Billion and revenues of up to 20 Billion annually, it is amongst the best performers in the market for its variety of ventures (Bichler, Shimshon; Nitzan, Jonathan 2010). The firm's strategy is to drive growth and margin expansion in a responsible and sustainable way so as to deliver long term wealth and value creation for its shareholders in the long term period. To achieve this Diageo has at its disposal a broad band range, geographical reach to its customers and expertise of its employees who share the same values.
0perating costs skyrocketed by £339 million from £7,564 million in 30th June 2012 to £7,903 million in 30th June 2013 due to an increment in the cost of sales of £215 million from £4,228 million to £4,443 million, an increase in marketing spend of £96 million from £1,691 million to £1,787 million, and an increase in other operating expenses before exceptional costs of £28 million, from £1,645 million to £1,673 million.
Cost of sales was £4,443 million in 30thJune 2013 compared to £4,228 million in 30th June 2012. The 1% volume increase together with some favourable mix impact added £37 million to the cost of sales. Increases on utilities, logistics and materials amounted to around 4% of cost of sales
Net sales were £76 million in the year ended 30 June 2013, up £6 million compared to last year. Net operating charges were £149 million as observed in the year ended 30 June 2013 having been £165 million in the year ended 30 June 2012. The reduction comprised a £10 million decrease in corporate costs, primarily due to a reduction in acquisition costs and £6 million favourable exchange rate movements (Nemethy, 2011).
In the year end 2012, sales increased to £14,594 million from £13,232 million in the year ended 30 June 2011. Operating costs increased from £7,052 million in the year ended 30 June 2011 to £7,574 million in the year ended 30 Jun 2012 as a result of an increase in cost of sales of £245 million, an increase in marketing expenditure from £1,538 million to £1,691 million, and an increase in operating expenses of £114 million. Cost of sales summed up to £4,228 million in the year that ended 30 Jun 2012 compared with £3,983 million in the year ended 30 June 2011. This amounted to a 2% or so increase in volume amounting to £110 million to cost of sales. Increase in cost of materials and utilities amounted to 5% of cost of sales. Operating profit noted for the year ended 30 June 2012 was observed to have increased by £563 million up to £3,158 million (Reddy, Appannaiah & Sathyaprasad, 2010).
In accordance to the group's overall strategy, the group’s management is committed to improving shareholder wealth in the long term, by investing in the various brands of the diverse business to ensure delivery of continued improved results on the return from these investments and by managing the capital structure. Diageo manages its capital component to maximise flexibility, achieve capital efficiency and give the necessary level of accessibility to debt markets at favourable costs. To ensure management of the same, the group regularly reviews its debt and equity capital levels against its agreed upon policy for capital structure.
Financial Performance analysis (past five years)
Income statement data2013 million2012 million2011 million2010 million2009 millionSales 15,48714,59413,23212,95812,283Operating profit3,4313,1582,5952,5742,418Profit for the yearContinued operations2,594 2,083 2,017 1,762 1,704 Discontinued operations0 (11)0 (19)2 Total profit for the year2,594 2,072 2,017 1,743 1,706 Dividend per share (pence)47.443.240.438.136.1
The table above shows steady growth of the company's financial position and performance as indicated by the growth in sales volume and operating profit of the company over the past five years. Return of shareholders’ funds has as well increased steadily over the years leading up to the year end June 2013 as indicated by the dividend per share. Continued growth of profits for year end is indicative of a steady rise in earnings per share for the shareholders profitability (Alexander, & Sinnett, 2005). The two major competitors facing it off with Diageo (DEO) in the premium drinks market are SAB Miller (SAB) and Pernod Ricard SA (PVT1) (Martin & Nissan, 2003). In the Trailling twelve Months (ttm), statistics put SAB miller ashead in terms of having the highest revenues at 22.31 billion in comparison to 19.41 B and 11.15 B for SAB and PVT1 respectively. The industrial average for the same is 19.14 B showing that both SAB and DEO are doing well at their level of performance. In all other respects however, SAB performs at relatively poor in comparison to DEO as indicated by the Gross Margin, Earnings before Interest aand Tax (EBITDA), operating margin and net margin in the ttm. Figures stand at: EBITDA of 6.65 B and 5.85 B; Operating margin of 0.32 and 0.20 and an operating margin of 4.46 B and 3.38 B for DEO AND SAB respectively.
Generally, SAB does not have as much exposure to the premium beverage market as does DEO. It does however, have more exposure to emerging markets around the globe. With the growing demand for beer in the market SAB stands at a better advantage as opposed to the more dorminant spi...