Whitbread Plc Environmental Reporting - Assignment Example

Whitbread Plc Name Name of Institution Whitbread Plc Section A. Environmental Reporting Environmental reporting simply is a description of the different ways companies divulge information regarding their environmental activities. Therefore, White bread environmental report should be composed of two categories; the mandatory disclosure which requires it to disclose pollutants according to the authorities in charge and the other category is voluntary disclosure whereby the company reports any environmental information voluntarily to the public (Brophy and Starkey, 2007). The mandatory scheme presents a potent incentive for Whitbread to trim down its toxic release. The Whitbread environmental reporting should therefore include an introductory statement which states the company name, sector, main and side activities, environmental authority and licensed aspects (KPMG, 2008). There should also be a management report which explains deviation from last year’s account and choice of environmental data, health and safety issue. Finally according to Jones (2008), environmental data should be included and this should touch on energy, water and raw material consumption by Whitbread Plc, facts about pollutants to water air and soil. Social Reporting Just like many a few other companies, Whitbread Plc should be transparent about the social impact of its business activities. By doing social reports Whitbread Plc is at a position to examine key social risks and opportunities in the perspective of its business operation (Brophy and Starkey, 2007). Therefore, Whitbread social report should consider the following aspects; where the company is, where the company has been and where the company is going. In the report there should be an assurance to the consumers about the ethical implication of their purchase, an assurance to the investor about the safety of their investment as social risks are taken care of, the communities as well civil society organizations should be assured of the safety of their social relations and environment and finally the employees should be assured of the safety of the company they offer their services for (EPA, 2009). The above two reporting are very important for all companies to undertake. First of all, according to Verfaillie and Bidwell (2000), environmental report is a mandatory for companies and those who fail to do so face the risk of being fined heavily. Jones (2008) stated that, it is a sign of responsibility by the companies and especially those in consumer goods as they reassure their clients of their accountability and care for their well being. Thirdly environmental and social reporting is keeps the companies on their toes regarding pollution and toxins release to the environment. This is by conducting environmental and social audits based on the reports they have given. If the companies are to be given freedom regarding these issues not only would the existence of human kind be threatened by the companies’ own survival and existence would be thwarted. Last but not least, KPMG (2008) highlighted in their report that these reports are very important for policy formulations; governments and relevant organs will come up with new policies and amend existing ones based on the kind of audited reports the companies give. The companies themselves are will carry out their own policy formulations as they deem fit based of the results indicated in their reports so that their business operations is guaranteed of continuity through consumer satisfaction. Section B. The company has a balanced score card that measures the key performance indicators in virtually all aspects of the company’s operation including social and environmental aspects. From these results the company is well above target regarding health and safety issues (Whitbread 2010/11). This implies that the target for zero work related accidents were met by the company where there were either few injuries or none at all. On the same note, the target for Whitbread to reduce its energy was above target. This means that the company utilized just what it needed in terms of energy with very little wastage. The company target is to reduce relative operational carbon emission by 26% by 2020 and to achieve this target Whitbread Plc has a yearly target of reducing carbon emission by about 2.6 % in order to meet this 2020 emission target. In their 2010/2011 report the company recorded a 1.95% reduction in carbon emission despite the growth in revenue by 11.5 percent (Whitbread 2010/11). Based on sales, the emission efficiency improved by 11.78 percent; this is a good course towards achievement of their emission target and this shows that the company is environmentally and socially responsible as there is dedicated effort to reduce their carbon emission by a considerable margin every year. There is also a very imperative reporting regarding the waste diversion. The company’s target is to achieve 80% of waste diverted from landfill from the company’s hotels and restaurants by 2012. The reporting of 2010/2011 fiscal year recorded 67% of wastes hotel and restaurant waste from landfill sites (Whitbread 2010/11). There is improvement to this aspect when compared with that reported in 2009 Fiscal year where it the diversion was recorded at 42%. Hence the company is showing signs of environmental and social responsibility and care for the communities around it. The company is regarded one of the greatest consumers of water in its operations and water being a resource that should be shared by the surrounding communities should be utilized sparingly without wastage. For this cause, the company’s 2020 baseline target is to achieve a 20% relative reduction in water consumption in their hotels and restaurants and to realize this, the company works on a formula of reducing yearly water consumption by 2% (Whitbread 2010/11). However they reported a reduction of 5.74% in the 2010/2011 fiscal report. Whitbread Plc does not seem to have met its target but all the same this is a good course towards meeting the forecasted target. On the social front which is linked with corporate social responsibility, Whitbread Plc targeted that by 2012 it should have raised funds to build a foundation school sufficient to educate about 15,000 children in the coffee growing communities (Whitbread 2010/11). Since the last four years the company has built a total of about 82 classrooms in these communities and about 9000 children are currently being educated (Whitbread 2010/11). This is a true measure of social responsibility on the side of Whitbread Plc. It also shows the appreciativeness of the company for the communities in whose region its business is gaining grounds. These environmental and social data is very significant to any investor who wishes to invent in the company as it shows the responsiveness of the company on these two fronts. If there is no responsiveness on the side of the company then it is red flag as the company will stand deregistration or heavy fines imposed. Additionally the communities around may contest or oppose any expansion strategies the company may want to explore as well as advocating for the company’s complete removal from the area. Part C Any investor who plans to put some investments in Whitbread Plc either currently or in the future is advised to look at the financial analysis of the company as this will tell the actual performance of the company in terms of revenue and financial strength and envisaged growth rate. Financial analysis focus on financial ratios that reveal the position of the company and comparisons with previous performances will be made to see the trend in performance. The ratios show relationships involving diverse elements of the financial statements (Aswath, 2012). They can help emphasize areas calling for deeper exploration. Ratio analysis Under profitability ratio, gross profit margin and net operating profit after tax will be computed. Gross profit margin: This is expressed as; (Sales-Cost of sales)/Sales This ratio indicates how much is still accessible for other expenses after covering costs of the products sold (Desiree, 2007). It measures the profitability of the Whitbread Plc in terms of selling products to customers. GPM = (1599.6-237.1)/1599.6 = 85% 2011 GPM = (1435.0-213.5)/1435.0 = 85% 2010 Results for 2009 and 2008 FY are shown in the trend analysis. Gross Profit margin is steady. In 2010, the Whitbread Plc had approximately 85 cents of every sales dollar on hand to put in to other expenses and profit, after covering cost of sales, compared to the same ratio in 2011. Net Operating Profit after Tax (NOPAT): Operating Profit is that which arises from the company’s continuing operating activities. It leaves out objects such as income or expenses from financing activities. It measures operating profit after tax relative sales and reveals how profitable Whitbread Plc is from its continuing activities (Sheridan and John, 2008). It is expressed as; NOPAT margin = NOPAT/Sales =221.1/1599.6 = 0.14 2011 =160/1435 = 0.11 2010 There is a minor decline between the company's NOPAT margin for 2010 and 2011. Since GPM was constant between the two years, it would not be irrational to expect NOPAT margin to also be constant. Given the minor decline, it is likely that operating expenses have augmented somewhat quicker than sales. NOPAT margin for 2009 and 2008 are shown in the ratio trend and reveal the same scenario. Under liquidity ratio, the analysis will focus on current ratio and quick ratio. Current ratio compares existing assets to existing liabilities to prove if the company has an adequate level of liquidity to take care of its existing liability commitments when they fall due (Albert, 2003) and (Dale, 2007). Generally, incapacity to meet up current liabilities with the obtainable of current assets is a red flag pointer. Quick ratio on the other hand shows a relationship between current assets inventories and current liabilities. The two rations are indicated in the ratio trend for the last four years. The table below shows a trend in ratio analysis for the company over the last four years; Year 2011 2010 2009 2008 Gross profit mrgin 0.85 0.85 0.81 0.81 NOPAT Margin 0.14 0.11 0.09 0.88 Current ratio 0.42 0.46 0.40 0.38 Quick ratio 0.43 0.41 0.37 0.37 Whitbread has $ 0.42 of current assets of every one current liability. This shows the difficulty for the company to meet its current debt obligation by use of current assets. The company is forced to seek for funds through some kind of credit facilities to meet short term debt obligations. All the other ratios highlight a potential for growth for the company since the previous years have shown substantial improvement in financial strength of the company. With acquisition of more current and long term assets the company will be in a position to comfortably take care of its short term debt obligations (Denis and Axel, 2005). There is however areas that are red flag pointers for Whitbread Plc that needs to be addressed by the management in order that investors are turned away from investing in the company. Stability of gross profit margin may for the two subsequent financial years indicate stability in revenue; this is a red flag in the sense that revenue growth is so negligible to affect the gross profit margin. Measures should be taken by the management of the company to ensure that revenue solid revenue growth is realized. Part C: Recommendations to Investor Based on social and environmental analysis, the company is up to date with all the relevant aspects and no investor would almost want to out rightly invest in the company. However, considering the ratio analysis and trend for the last four years, no much activity in terms of returns is evident. There are very negligible improvements in performance as is indicated by the above ratios. Having said this, it does not mean that the company is a complete cast away for an investor, in fact it is the best company an investor would invest in. my recommendation is based on a number of reasons. The company is in a process of expanding its operations not only in Europe but globally, most of its income is used to finance this expansion growth and within a time frame of five years this expansion plan will bear fruit so if there is ever a time for an investor to invest in the company, this is the time. On the other hand the company is utilizing its current assets comprehensively such that at no one time will the company have any idle assets at its disposal. This indicates robust activities in the operation front to the point that external funding is the only alternative for the company to meet its short term liabilities although this is a risky venture (Aswath, 2012). Refrences Brophy, M and Starkey, R 2007, Environmental Reporting. In R. Welford (Ed.), Corporate Environmental Management Systems and Strategies, London: Earthscan. EPA, D 2009, Green Accounting in Denmark; retrieved from: http://www.mst.dk/activi/07000000.doc. Jones, K 2008, Study on Environmental Reporting by Companies. Brussels: European Commission. KPMG 2008, KPMG International Survey of Environmental Reporting 2008. De Meern: KPMG. Verfaillie, H and Bidwell, R 2000, Measuring Eco Efficiency: A Guide to Reporting Company Performance, Geneva: WBCSD. Whitbread 2010/11 Annual Report and Accounts. Denis, Babusiaux and Axel, Pierru 2005, Corporate Investment Decisions and Economic Analysis. Routledge: New York Desiree, Nicholette 2007, An Empirical Investigation of Corporate Investment Decisions, University of California: California Albert, Jaeger 2003, Corporate Balance Sheet Restructuring and Investment in the Euro Area, International Monetary Fund. European I Dept Sheridan, Titman and John, Martin 2008, Valuation: The Art and Science of Corporate Investment Decisions: Vol. 1 no.345. p. 221-265 Dale, Gray 2007, “Assessment of Corporate Sector Value and Vulnerability,” Investment, Vol. 23 no. 455. P. 14. Aswath, Damodaran 2012, Investment Valuation: Investment Valuation: Tools and Techniques for Determining the Value of Any Asset, John Wiley and Son: New Jersey. Read More