OBJECTIVES
As a person with experience knowledge of companies within Footsie 100 index, the author has always brought up to his superiors the viability of strategy formation regarding the analysis of annual reports and at times fails to understand the reasons or logic behind certain strategic implementations imposed on it.
By delving into this project paper, the author intends to have better insights into how the annual reports of Footsie 100 companies are thought up, formulated and then imparted down. The author hopes to have an in-depth understanding as to how the information on the annual reports of these Footsie 100 companies enables them to compete effectively and profitably in this era of internationalization where competition is extremely intense.
In order to reinforce the learning objectives, two key focal issues were focussed upon, i.e. innovation and diversity. Innovation was discussed with regard to the analysis of the annual report where it was renowned for its developmental capabilities to constantly innovate. Diversity came under strategic thinking and formation as the author considered the diverse culture, political climate, economic surroundings, social environment, technological settings, government policies and legal systems in order to better understand the information found in the annual report.
INTRODUCTION
Annual reports reflect the degree of efficiency and effectiveness of a company or organization’s implementation of the policies and tasks necessary to satisfy their customers, employees, and management. These are usually in the form of figures and other accounting policies. Annual reports normally focus on the information regarding the company’s careful management of the processes involved in the production and distribution of its products and services.
More often than not, small companies don’t really have the capabilities to issue annual reports. Instead, these companies engage in activities that various schools of management typically associate with making annual reports of their status. These activities include press release involving the manufacturing rate of their products, product development, production and distribution.
However, a comprehensive annual report must deal with all operations done within companies and organizations. Activities such as the management of purchases, the control of inventories, logistics and evaluations must still be covered by annual reports. A great deal of emphasis lies on the efficiency and effectiveness of processes. Therefore, annual reports must include the analysis and management of internal processes.
Morrison Supermarkets will be the model Footsie 100 business entity that will be used in this research based on their history in making comprehensive annual reports.
ANALYSIS
The following information was found in the 2005 Annual Report of Morrissons Supermarkets, specifically on the Accounting Principles section.
Fixed Assets and Depreciation
Depreciation
“The policy of the group is to provide depreciation at rates which are calculated to write off the cost less residual value of tangible fixed assets by equal annual installments. Following the acquisition of Safeway Limited (formerly Safeway plc), the group has harmonized its depreciation rates resulting in the following changes:
NEW RATE PREVIOUS RATE
GROUP
MORRISONS
SAFEWAY
Freehold land
0%
0%
0%
Freehold and long lease buildings
2·5% 2%
10% 2·5%
2·5% 2%
Short lease land and buildings
Over lease period
Over lease period
Over lease period
Plant, equipment and vehicles
15%
33% 15%
33% 12·5%
Had the group’s previous rates been applied the depreciation charge in the current period would have been £35m higher, and the net book value of fixed assets an equivalent amount lower. In addition to the systematic depreciation, fixed assets are reviewed for impairment if events or changes in circumstances indicate that the carrying amount may not be recoverable” ().
Fixed assets
In terms of intangible assets (negative goodwill), it was equivalent to 262·9 £m in 2005, while the tangible assets registered to about 6,824·0 1 £m.
B. Debtors and Provision for Doubtful Debts
“Cash, for the purpose of the cash flow statement, comprises cash in hand and deposits repayable on demand, less overdrafts payable on demand. Overdrafts are stated net of uncleared banking items (mainly cheques in the course of clearing). Liquid resources are current asset investments which are disposable without curtailing or disrupting the business and are either readily convertible into known amounts of cash at or close to their carrying values or traded in an active market. Liquid resources comprise term deposits of less than one year (other than cash) and investments in money market managed funds”().
C. Stock and Cost of Sales
“Stocks are valued at the lower of cost and net realizable value and comprise goods for resale. The cost of financing property developments prior to their opening date is included in the cost of the project “().
2) The major issues/changes that Morrissons Supermarkets have faced in the last 12 months were indicated in the Chairman’s Statement section of the 2005 Annual Report. Its highlight was Morrisons Supermarkets’ recent acquisition of rival Safeway Supermarkets.
Morrisons Supermarkets won the bid to acquire Safeway Supermarkets, and the integration of the two business entities started on March 8, 2004 (). Under the agreement, Morrisons had to let go of more than fifty stores and sell them to other buyers. It was fortunate that there were many buyers interested on those stores, but of course the fact of letting go of those stores was discouraging. The main objective of merging the Safeway supermarkets with Morrisons Supermarkets did not materialize easily, since there became a necessity of certain cultural adjustments all throughout the newly merged company in order to improve the overall business operations. The process of benchmarking of all the products of both companies was the main goal which the company believed would optimize their operations.
Ever since the start of its business, Morrisons Supermarkets has always been a sales-oriented business entity. They give premium value to their clients because they believe that this is the key towards increased sales and maximization of operations. Morrisons plans to convert the former Safeway stores into a rolling store format throughout the next months, believing that this move will guarantee further growth through the recognition of the needs of their clients. Morrisons Supermarkets is governed by an effective management group which helps in maintaining the delivery of quality services for all its customers to enjoy.
3) Pieces of Information
A. Suppliers (Director’s Statement)
Payment to creditors
“Supplier credit is an important factor in the success of the business. Following the acquisition of Safeway Limited the company will, as previously acknowledged, work within the spirit and letter of the supermarkets’ code of practice. The company will continue with its policy to ensure all payments are made within mutually agreed credit terms. Where disputes arise the company attempts to sort these out promptly and amicably to ensure delays in payment are kept to a minimum. Creditor days outstanding for the company at 30 January 2005 were 39 (2004 ) ()”.
B. Local Community (Director’s Statement)
Political and charitable donations
“During the period the group made charitable donations amounting to £153,000. In addition the group sponsored various charities and in the year over £4·1m was raised by customers and staff. No political donations were made ().”
Future developments
“The group continues to expand into new areas of merchandise where considered appropriate and plans to continue physical expansion of retail stores as and when opportunities arise. Further details of current and future developments are set out in the chairman’s statement ().”
C. Customers (Director’s Statement)
Health and Safety Policy
“It is the group’s intention as far as is reasonably practical to ensure the health, safety and welfare of all its employees, customers and visitors to its premises. In order to achieve this, the group has drawn up a comprehensive health and safety manual that contains policies and procedures detailing safe working systems and practices for all work-based activities ()”.
D. Shareholders (Director’s Statement)
“The company maintains regular contact with institutional shareholders throughout the year. In addition the annual general meeting provides a forum for communicating with private investors. The non-executive directors have developed an understanding of the views of the major shareholders from briefings provided by the chairman and executive directors at the board meetings ()”.
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