Fisher and Paykel Appliances Holdings Limited - Assignment Example

Company Fisher & Paykel Appliances Holdings Limited Group number number s submitted TABLE OF CONTENTS Introduction……………………………………………………………... 3 Accounting Treatment under NZ IAS or NZ IFRS…………………….. 3 Trend Analysis ………………………………………………………...... 8 Cross-sectional Analysis………………………………………………… 9 Summaries……………………………………………….......................... 11 Conclusion…………………………………..…………………………… 14 References …………………………………………………………..…... 15 Appendices …………………………………………………………..…... 16 Introduction This report is documented to analyze the financial statement of Fisher & Paykel Appliances Holdings Limited for the years 2012, 2011 and 2010. The beginning part of this report includes the accounting treatment of various accounting head under NZ IAS and NZ IFRS. Financial statements of the company are then analyzed in horizontal basis to identify the existing trends of the company in respect of its latest performance and position. Cross-sectional analysis is then established in order to find out the financial performance of the company in respect of profitability, liquidity, efficiency, solvency, and investment. Last part of this report summarizes the two financial articles. Accounting Treatment under NZ IAS or NZ IFRS Fisher & Paykel Appliances Holdings Limited mainly adopts three types accounting and reporting standards. These are New Zealand – Generally Accepted Accounting Principles (NZ GAAP), New Zealand – Financial Reporting Standards (NZ FRS) and International Financial Reporting Standards (IFRS). For most of the accounting heads are treated in accordance with NZ FRS, which is slightly different from IFRS in respect of different dates, additional requirements and some legislative requirements. However, the accounting principles under NZ FRS and IFRS are same. Following are some of the accounting heads, which are followed by Fisher & Paykel Appliances Holdings Limited in its financial statements: 1. Revenue Recognition For revenue recognition, NZ IAS 18 states that, “Revenue from sales of goods is recognized when the significant risks and rewards of ownership have transferred to the buyer.” 2. Government Grants Under NZ IAS 20, the following constitutes to government grants by Fisher & Paykel Appliances Holdings Limited: “Government grants include government assistance relating to specific research activities, amounts received to encourage retention of employees and also amounts received to encourage set up of operations in certain regions. Grants are deducted against the expenses they are intended to compensate.” 3. Leases For lease accounting, Fisher & Paykel Appliances Holdings Limited follows NZ IFRS, which states that, “Leases under which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. All other leases are classified as operating leases. Assets acquired under finance leases are stated at an amount equal to the lower of their fair value and the present value of the minimum lease payments at the inception of the lease, less accumulated depreciation and any impairment losses.” 4. Insurance In order to adopt accounting treatment for insurance contracts, Fisher & Paykel Appliances Holdings Limited follows NZ IFRS 4 which states the main criteria as, “Claims handling costs include costs that can be associated directly with individual claims, such as legal and other professional fees, and costs that can only be indirectly associated with individual claims, such as claims administration costs. Discounting is not applied as claims are typically resolved within one year. Amounts paid to insurers under insurance contracts are recorded as an outwards reinsurance expense and are recognized in the Income Statement from the attachment date over the period of the indemnity of the reinsurance contract in accordance with the expected pattern of the incidence of risk ceded.” 5. Inventories For inventory valuation, Fisher & Paykel Appliances Holdings Limited applies lower of cost or net realizable value criteria as mentioned in NZ IAS 2 – Inventories. 6. Property, Plant & Equipment For PPE, Fisher & Paykel Appliances Holdings Limited applies NZ IAS 16 which depicts that, “Property, plant & equipment is stated at historical cost less accumulated depreciation and any impairment losses if applicable. Historical cost includes all expenditure directly attributable to the acquisition or construction of the item, including interest. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the asset will flow to the Group and the cost of the asset can be measured reliably. All other repairs and maintenance are charged to the Income Statement during the financial period in which they are incurred.” 7. Intangible Assets Goodwill is treated in accordance with NZ IAS 38 for which Fisher & Paykel Appliances Holdings Limited has the following consideration: “Goodwill arises on the acquisition of subsidiaries, and represents the excess of the consideration transferred over the groups interest in net fair value of the net identifiable assets, liabilities and contingent liabilities of the acquiree. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is not amortised but is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less any accumulated impairment losses. Goodwill is allocated to cash generating units for the purpose of impairment testing. Impairment losses on goodwill are not reversed.” 8. Impairment of Assets For impairment of assets, NZ IAS 36 is applied by Fisher & Paykel Appliances Holdings Limited in the following manner: “Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use.” 9. Provisions For making provisions, Fisher & Paykel Appliances Holdings Limited adopts NZ IAS 37, which states the following notion: “Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the effect of the time value of money is material, the amount recognised is the present value of the estimated expenditures.” 10. Employee Benefits Following are the main criteria for recognition of employee benefit in terms of Defined Contribution Plan and Defined Benefit Plan by Fisher& Paykel Appliances Holdings Limited as per NZ IAS 19 Employee Benefit: Defined Contribution Plan “Contributions to the defined contribution superannuation plans are recognised as employee benefit expenses when incurred. The Group has no further payment obligations once the contributions have been paid.” Defined Benefit Plan “The cost of providing benefits is determined using the Projected Unit Credit Method, with independent actuarial valuations being carried out annually. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions in excess of the greater of 10% of the value of the plan assets or 10% of the defined benefit obligation are charged or credited to income over the expected average remaining working lives of employees participating in the plan. Otherwise, the actuarial gain or loss is not recognised.” Trend Analysis Income Statement – Trend Analysis If income statements of Fisher& Paykel Appliances Holdings Limited for the years 2012, 2011 and 2010 are taken into account, it can be noticed that its financial performance has been on a consistent declining trend. Total revenues are dropped by -3.7% in 2011 and -7.4% in 2012 as compared to their corresponding previous years. Operating profits for the company improved in 2011 but very next year they showed a deficit of around -39.57%. Similarly, net profits for the year 2011 improved as compared to previous year, but in 2012, they were down by around -45%. Overall, it can be concluded that the financial performance of Fisher& Paykel Appliances Holdings Limited has shown disappointing results. Balance Sheet – Trend Analysis Balance sheet of Fisher& Paykel Appliances Holdings Limited also shows the sluggish position of the company such that its current assets underwent a drop of -6.23% in 2011 and -9.87% in 2012. Total assets of the company also fell by around -5.68% in 2011 and -6.72% in 2012 respectively. For liabilities, company also presented a decrease of -7.47% and -5.98% the years 2012 and 2011 whereas non-current liabilities remained down by -13.65% and -15.53% in the years 2012 and 2011. However, equity section of the company has shown more or less similar trend such that it remained between a range of -1% to 2% for 2012 and 2011 as compared to their previous years. Cross-sectional Analysis Profitability Analysis As far as the profitability of Fisher& Paykel Appliances Holdings Limited is concerned, the year 2011 has been the most favorable one. The company experienced a very disappointing 2010 but in 2012 it remained below par. Net profit margin and operating profit margins and return on assets improved slightly in three years. However, the pick of the ratio is return on equity, which has improved from -25% to 3% in 2012 as compared to 2010. Liquidity Analysis The liquidity position of the company remained stable throughout three years such that its current ratio remained in between 1.55 and 1.51, which shows that the company has around 50% more money in the form of current assets available to pay off its current liabilities. Quick ratio discards the effect of inventory being a slightly illiquid asset from the current ratio such that it has around 20% more liquid current assets to pay off its current liabilities. Efficiency Analysis Efficiency position of Fisher& Paykel Appliances Holdings Limited has also remained quite stable and in fact slightly growing in all respects. Inventory turnover increased from 5.63 times to 6.79 times is a better performance of the company in maneuvering its inventory. Accounts receivable turnover also increased from 6.5 times to 8.21 times in three years time, which shows that the company is collecting more of its revenues as compared to preceding years. However, there has been an increase in payable turnover, which increased 9.21 times to 10.68 times which shows that the company is taking very less time to pay off its creditors. Solvency Analysis Gearing ratio or debt-to-asset ratio has been calculated to check the capital structure of the company. In three years time, the amount of debt has been reduced from 63% to 58% in three years time, which shows a less risky position of the company in pursuit of chances of default. Investment Analysis Earnings per share of the company were quite disappointing in 2010 with $(-11.3) but it bounced back in 2011 with the figure of $4.55 per share. However, last year it remained around 2.5, which again presents the volatile performance of the company. Likewise, Price/Earnings ratio of the company has not remained attractive for shareholders in three years time. Summaries Article 1 According to the sources, Haier Group Corp., a Chinese appliance manufacturer has shown interest in taking over a New Zealand based company, Fisher & Paykel Appliance Holdings Ltd. The purpose of Haier Group Corp. in taking over this company is essentially its enthusiasm for expanding internationally. Haier Group Corp. already possesses 20% of shareholding of Fisher & Paykel. It is now approaching to acquire the three largest shareholders of Fisher & Paykel, through a possible offer and therefore, is now undertaking limited due diligence, according to the filing of Fisher & Paykel with New Zealand stock exchange. Even though the financial information has not been disclosed, yet Fisher & Paykel claims that this offer, which is made by Haier will add a premium to the current share price of the company. Soon after that, the share price of Fisher and Paykel rose by 29% and reached to 97 New Zealand Cents, which brought the market values of the company to US$569 million. Beijing has persuaded the international expansion of its companies to soften the image of the country. These global expansions are being undertaken to transform the economy of China into knowledge-based, high-technology country. Previously, Shandong Heavy Industry Group-Weichai Group, a Chinese bulldozer maker, agreed to sign a minority stake in a forklift manufacturer company, Kion Group GmbH. The deal settled for US$945.9 million (738 million Euros). This deal is considered as the biggest transaction of Chinese Company with Germany. Apart from that, Wanxiang Group, Chinese auto-parts Company agreed to invest in A123 Systems Inc, a US battery manufacturer company. This deal settled for US$450 million. Another transaction held between AMC Entertainment Holdings, a U.S movie theater chain and China’s Dalian Wanda Group Corp., for US$2.6 million in May. The Qingdao based company; Haier was the first Chinese company, which moved to international expansion in 1984. It introduced its brand in U.s, Japan and Europe in 1990s. It has been moving forward to build its business internationally. A deal was settled in 2009, with General Electric Corp to sell and distribute its appliance in rural China. In 2004, Haier lost Whirlpool Corp. in order to acquire Maytag Corp. Haier has distribution in more than 300 countries and employs around 80,000 employees. It acquired a consumer refrigerator and washing machine business from Sanyo Electric Co. of Japan. Three years ago, Haier took over 20% stake in Fisher and Paykel which settled for around NZ$80 million which makes around US$65 million. This deal facilitated the Chinese Company in gaining access to the marketing and Research and Development of Fisher and Paykel. Moreover, it also provided the company with exclusive rights to sell the product of New Zealand’s Company in China. At the same time, Fisher and Paykel had the rights to sell and distribute the appliances of Haier Corp in Australia and New Zealand. This year, it also started to sell the products of Haier in Ireland. Fisher and Paykel is considered as just a small fish in the appliance industry of New Zealand. In the fiscal year ending on March 31, it reported revenue of just NZ$891 million, which makes around US$723.9 million. However, last year Haier reported revenue of around US$23.3 billion. New Zealand Company holds patents and new technologies, which includes a patent for a dishwasher that possesses two drawers instead of one single pull-down door. The appliance manufacturers based in Auckland have been beaten in the past few years as the strong currency of New Zealand and Weak economy resulted in declined earnings of the companies and forced them to suspend the payments of dividends. Investors have encourages the approach of Haier. It seems as if New Zealand has become concerned about raising the levels of Chinese Investments in the New Zealand’s Companies. Grant Williamson, a broker said that “Despite of having a lot of difficult times of five years, it is very disappointing to see that the investments of New Zealand’s Research and Development has fallen into foreign hands” Article 2 China’s largest home appliance manufacturer, Haier Group Corp is paving the way of compete takeover and now possess more than 90$ of shareholding in Fisher and Paykel Appliances Holding Ltd. According to the filing with New Zealand Stock Exchange, The Qingdao Company said that it possesses a control of 92.79 % of this home appliance maker with a share offer of NZ$1.28 per share, i.e. US$1.06. The deal was finalized at US$766 million. This deal provides the signal of Haier’s long-term plan towards the overseas market expansion. The chairman of Haier New Zealand Investment Holding Co. Mr. Liang Haishan said that, "We look forward to working with Fisher & Paykel Appliances during the next phase and seeking opportunities for further collaboration between the two parties to strengthen both brands." He further added that, "The takeover is an important step for Haier to push forward its global brand strategy and the two parties are expected to bring consumers various types of products for differentiated needs," In 2009, Fisher and Paykel provided shareholding to Haier. First, Haier made the offer of tender in September and October. The bid was raised from NZ$1.28 TO NZ$1.20 Fisher and Paykel is a listed company, it would be very difficult for the company to operate and therefore, survive, and in this regard, takeover would be the best decision for both the companies. By this acquisition, Chinese company would be able to take charge of four plants. These plants are in Thailand, New Zealand, Italy and Mexico. Industry watchers have said that Haier is very anxious in expanding its business all over the world. Conclusion As it can be observed from the financial analysis of Fisher & Paykel Appliances Holdings Limited, the company is steeply going down. However, even in such weird circumstances for the company, Haier New Zealand has taken over the company at a share price of $1.2, which was almost double from its previous three years’ average price. Time would be the ultimate factor which would justify this decision of Haier New Zealand. References Benedicto, M.S. (2008) Introduction to Financial Accounting. IE Business School. This is a multimedia presentation reviewing the four financial statements. The information is also available in a PDF file.  Click on “accounting equation” tab. Retrieved fromhttp://openmultimedia.ie.edu/openproducts/financial_accounting/financial_accounting/frames.html Fisher & Paykel Appliances Holdings Limited (2010). FISHER & PAYKEL APPLIANCES HOLDINGS LIMITED. Retrieved 28 November 2012, from https://www.nzx.com/files/attachments/157799.pdf Fisher & Paykel Appliances Holdings Limited (2011). FISHER & PAYKEL APPLIANCES HOLDINGS LIMITED. Retrieved 28 November 2012, from https://www.nzx.com/files/attachments/157799.pdf Fisher & Paykel Appliances Holdings Limited (2012). FISHER & PAYKEL APPLIANCES HOLDINGS LIMITED. Retrieved 28 November 2012, from https://www.nzx.com/files/attachments/157799.pdf Appendices Income Statement – Trend Analysis   2012   2011   2010 Revenue 1,031,168 -7.13% 1,110,342 -4.04% 1,157,029 Other income 6,790 -35.95% 10,601 50.71% 7,034 Total revenue and other income 1,037,958 -7.40% 1,120,943 -3.70% 1,164,063 Items affecting comparability (10,709) 674.89% (1,382) -98.99% (137,102) Other operating expenses (988,862) -6.36% (1,056,038) -4.16% (1,101,836) Total operating expenses (999,571) -5.47% (1,057,420) -14.65% (1,238,938) Operating profit 38,387 -39.57% 63,523 -184.84% (74,875) Finance costs (10,857) -29.51% (15,403) -154.25% 28,393 Profit before income tax 27,530 -42.79% 48,120 -53.40% 103,268 Income tax expense (9,099) -37.57% (14,575) -173.09% 19,940 Profit for the year 18,431 -45.06% 33,545 -140.26% (83,328) Other comprehensive (loss) / income for the year net of tax (28,198) 42.78% (19,749) -72.35% (71,431) Total comprehensive (loss) / income for the year (9,767) -170.80% 13,796 -108.91% (154,759) Balance Sheet – Trend Analysis Assets 2012   2011   2010 Current assets       Cash & cash equivalents 109,347 -3.68% 113,529 37.09% 82,814 Trade receivables & other current assets 125,652 -16.58% 150,628 -15.40% 178,044 Finance business receivables 359,662 -2.76% 369,876 -3.61% 383,714 Inventories 151,772 -22.21% 195,108 -5.12% 205,641 Non-current assets classified as held for sale 13,843 -7.84% 15,021 -62.67% 40,242 Derivative financial instruments 2,365 -10.89% 2,654 264.06% 729 Tax receivables 2,023 74.10% 1,162 -91.18% 13,175 Total current assets 764,664 -9.83% 847,978 -6.23% 904,359 Non-current assets       Property, plant & equipment 200,521 -0.81% 202,155 -7.43% 218,374 Intangible assets 196,709 -6.75% 210,948 -3.34% 218,231 Finance business receivables 234,870 1.36% 231,719 -0.11% 231,979 Derivative financial instruments 151 3675.00% 4 -97.69% 173 Tax receivables -   7,015   - Deferred taxation 54,783 -1.92% 55,857 -26.70% 76,206 Other non-current assets 1,988 -27.39% 2,738 -4.83% 2,877 Total non-current assets 689,022 -3.01% 710,436 -5.00% 747,840         Total assets 1,453,686 -6.72% 1,558,414 -5.68% 1,652,199 Liabilities       Current liabilities       Current borrowings 3,205   - -100.00% 164 Finance business borrowings 319,865 -2.75% 328,917 -7.92% 357,190 Trade creditors 96,560 -2.60% 99,141 -21.06% 125,598 Current finance leases - -100.00% 17 -94.82% 328 Provisions 20,485 11.69% 18,341 -1.82% 18,681 Derivative financial instruments 2,881 -86.28% 21,000 129.01% 9,170 Tax liabilities 1,515 -77.94% 6,869 26.92% 5,412 Other current liabilities 62,359 -15.20% 73,534 11.23% 66,107 Total current liabilities 506,870 -7.47% 547,819 -5.98% 582,650         Non-current liabilities       Non-current borrowings 83,605 -31.22% 121,557 -42.91% 212,906 Finance business borrowings 231,101 -5.67% 244,998 27.96% 191,466 Non-current finance leases -   - -100.00% 18 Provisions 15,575 9.72% 14,195 -9.30% 15,650 Derivative financial instruments 2,782 -51.20% 5,701 -3.27% 5,894 Deferred taxation 5,610 -18.35% 6,871 -75.22% 27,730 Other non-current liabilities 2,962 27.40% 2,325 -84.22% 14,733 Total non-current liabilities 341,635 -13.65% 395,647 -15.53% 468,397 Total liabilities 848,505 -10.07% 943,466 -10.24% 1,051,047         Shareholders equity       Contributed equity 841,869 0.00% 841,869 0.00% 841,869 Accumulated losses (147,992) -11.07% (166,423) -16.78% (199,968) Reserves (88,696) 46.61% (60,498) 48.46% (40,749) Total shareholders equity 605,181 -1.59% 614,948 2.29% 601,152         Total liabilities and shareholders equity 1,453,686 -6.72% 1,558,414 -5.68% 1,652,199             Ratios Formulae 2,012 2011 2010   Profitability   Net Profit Margin Net Profit / Revenue x 100 18,431 1.79% 33,545 3.02% (83,328) -7.20%   1,031,168 1,110,342 1,157,029   Operating Profit Margin Operating Profit / Revenue x 100 38,387 3.72% 63,523 5.72% (74,875) -6.47%   1,031,168 1,110,342 1,157,029   Return on Assets Net profit / Total Assets x 100 18,431 1.27% 33,545 2.15% (83,328) -5.04%   1,453,686 1,558,414 1,652,199   Return on Equity Net profit / Total Equity x 100 18,431 3.05% 33,545 5.45% (154,759) -25.74%   605,181 614,948 601,152 Liquidity   Current Ratio Current Assets / Current Liabilities 764,664 1.51 847,978 1.55 904,359 1.55   506,870 547,819 582,650   Quick/Acid Test Ratio (Current Assets - Inventories) / Current Liabilities 764,664-151,772 1.21 847,978-195,108 1.19 904,359-205,641 1.20   506,870 547,819 582,650 Efficiency Inventory Turnover Cost of Sales / Inventory 1,031,168 6.79 1,110,342 5.69 1,157,029 5.63   151,772 195,108 205,641   Days inventory in hand 365 / Inventory Turnover 365 53.76 365 64.15 365 64.83   6.79 5.69 5.63   Receivable Turnover Sales / Receivables 1,031,168 8.21 1,110,342 7.37 1,157,029 6.50   125,652 150,628 178,044   Debtors Collection Period 365 / Receivable Turnover 365 44.46 365 49.53 365 56.15   8.21 7.37 6.5   Payable Turnover Cost of Sales / Payables 1,031,168 10.68 1,110,342 11.20 1,157,029 9.21   96,560 99,141 125,598   Creditors Payment Period 365 / Payables Turnover 365 34.18 365 32.59 365 39.63   10.68 11.2 9.21 Solvency Debt Ratio Total Debt / Total Assets x100 848,505 58.37% 943,466 60.54% 1,051,047 63.62%   1,453,686 1,558,414 1,652,199 Investment Earnings per share Net Profit / Number of ordinary shares 18,431 2.5 33,545 4.55 (83,328) -11.30   7,372 7,372 7,372   Price/Earnings Ratio Price per share / Earnings per share 0.54 0.22 0.6 0.13 0.62 -0.05   3 4.55 -11.3 Read More