Analysis of Pan African Resources PLC's Financial Performance

The assignment report concludes that Pan African Resources PLC faces challenges in implementing Corporate Governance due to numerous rules and regulations. The company has utilized its finances effectively but is not performing well, which may lead to losing investors if they do not provide good returns. The Return on Capital Employed (ROCE) of the company is declining continuously, creating a problem in raising funds in the near future.

FINANCE AND
STRATEGIC
MANAGEMENT

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
(a)Corporate Governance Status and Challenges........................................................................1
(b)Capital Investments of Pan African Resources PLC..............................................................3
(c)Pan African Resources PLC Sources of Finance used till end of year...................................4
(d)Ratio Analysis for measuring business performance and financial health of Pan African
Resources PLC............................................................................................................................8
(e)Comment upon Pan African Resources PLC stock performance in the stock market.........11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Corporate Governance is the framework of rules and practices through which Board of
Directors of any Organisation can ensure there accountability, fairness and sort of transparency
with all the stakeholders they have which includes shareholders, customers, creditors,
government etc(Tricker, & Tricker, 2015). This project report states about corporate governance
status of PAN African Resources PLC and Challenges that are faced by them in following the
rules and regulation of it. Pan African Resources PLC is an mid tier African gold producer that is
having production capacity of more than 170000 oz of Gold per annum. This Project reports
presents the existing capital investment of Pan African Resources PLC and also defines the
sources form where the fund had been taken and utilised. The Current project report also depicts
the financial performance and health of organisation through Ratio Analysis. In this report there
is also comment on stock performance of company from the investor point of view which will
help them for future and current investment in Pan African Resources PLC.
TASK 1
(a)Corporate Governance Status and Challenges
Corporate Governance can be defined as a system of rules and practices through which
nay organisation is controlled and directed(Jacoby, 2018). This involves for maintenance of
interest of stakeholders which includes customers, suppliers, shareholders, government,
community etc.
The Board of Pan African Resources PLC is responsible for framework or maintaining
structure of Corporate Governance and that are supported with its four Sub-
Committee(Armstrong, Blouin, Jagolinzer, & Larcker, 2015). The disclosure regarding the
corporate governance are regulated by UK Companies Act, the SA Companies Act and Aim
Rules of JSE Listing Agreement Requirements of King IV. The Following is structure of
Corporate Governance followed by Pan African Resources PLC-:
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Here, Board is responsible and accountable for control over performance and operation of
all its subsidiaries. All the functions and act that are related to corporate governance are
performed by BOD of Pan African Resources PLC. The Board Composition of this organisation
includes and have balance of executive and non- executive directors in which majority are
independent directors(Vogel, 2014). They also have all the committed that are required to govern
corporate governance this includes Audit Committee, SHEQC Committee, remuneration
committee etc. Here the director's independence clause is also there that is determined by criteria
that is set in listing agreement act that had been proposed by King IV that includes assessment of
the character judgement of individual director.
The Chairman of the committee provides an independent board leadership and also
provide guidance and that helps in facilitating suitable thinking on all the matters that are
required for creation of board’s attention. The chairman also ensures that the board operates
effectively, efficiently and collectively.
The Challenges that are faced by Pan African Resources PLC in applying corporate
Governance are-:
1. For achieving the excellence that is required for Corporate Governance
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2. For following rules and regulation that are given under different acts and to know there
regulatory requirements.
3. For implementing timely the best corporate governance policy throughout the
organisation(Islam, 2014).
4. Different rules and regulations in transborder environment, so conflict arises.
5. Documentation and Internal Controls regarding Corporate Governance.
6. Training and Eduction to employees and directors regarding corporate governance.
(b)Capital Investments of Pan African Resources PLC
Capital investments are those investments that are invested in a organisation for an
expectation of income and these investments are recovered through earnings that are generated
in several years(Vogel, Harold, 2014). Sources of Capital Investments include banks, financial
institutions, venture capitalist etc.
Capital Investment of Pan African Resources PLC they had done in current year ended 30 th
June 2017
Particulars Amount In GBP
Mineral rights and Mining Property 24340
Buildings 4052810
Plant and Machinery 10759147
Capital under construction 15412825
Shafts and Exploration 4688625
Surface Tailings 289855
Other Property plant and Equipments 290575
Total Capital Investments 35518177
Existing Capital Investment of Pan African Resources PLC
Particulars Amount in GBP
3

Land 2177517
Mineral rights and Mining Property 45941734
Exploration assets 27763833
Buildings 35735195
Plant and Machinery 109086465
Capital under construction 27533904
Shafts and Exploration 42382644
Surface Tailings 0
Other Property plant and Equipments 271344
Total Existing Capital Investments 290892636
Less Total Accumulated Depreciation on All assets 66205189
Net Capital Existing Investments 224687447
Interpretation-:
The Existing Capital Investment of Pan African Resources PLC are GBP 224687447.
(c)Pan African Resources PLC Sources of Finance used till end of year
The following is the statement of changes in equity which shows that from where the fund had
been brought-:
Statement of Changes in Equity-:
It can also be said as statement of retained earnings and it shows change in owners Equity
over a period of accounting and it also presents changes in reserves which comprises
shareholders equity(Brigham, Ehrhardt, Nason & Gessaroli, 2016). The following are
components of statement of changes in equity-:
1. Opening Balance-: The opening balance presents balance of reserves that are available
for shareholders and also the balance of shareholders Equity.
2. Effect of Changes in Accounting Policy-: This also reflects if there is any change in
accounting policy. As there is retrospective effect of change in accounting policy so this
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must be shown as adjustment in the shareholders to known actual position after changes
in accounting policy had been done.
3. Changes in Share Capital-: Any Issue of share capital during current accounting period
must be added and any repayment or redemption of shares must be subtracted.
4. Dividends-: The dividend payments that are announced during the current accounting
period must be deducted from the retained earnings that are attributable to shareholders.
5. Profit and Loss of Current Period-: This represents any profit and loss that had been
calculated in income statement must be added or subtracted in statement of changes in
equity.
Statement of Changes in Equity for the year ended 30th June
2017(Financial Statement of Pan African Resources PLC, 2018)
Partic
ulars
Share
Capita
l In
GBP
Share
Premi
um in
GBP
Transl
ation
Reserv
e in
GBP
Share
Option
reserv
e in
GBP
Retain
ed
Earnin
gs
Realis
ation
of
Equity
Reserv
e in
GBP
Treasu
ry
Capita
l
Reserv
e in
GBP
Merge
r
Reserv
e in
GBP
Other
Reserv
es
Total
GBP
in
Pound
s
Balanc
e on
30th
June
2016
194320
65
108936
082
-
585838
48
103588
8
126620
650
-
107010
93
-
253767
43
-
107053
08 317509
150975
202
Issue of
Shares
291481
0
378925
28 0 0 0 0 0 0 0
408073
38
Share
Issue
Costs 0
-
142772
0 0 0 0 0 0 0 0
-
142772
0
Profit
for the
0 0 0 0 179100 0 0 0 0 179100
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year 36 36
Other
Compr
ehensiv
e
Income 0 0
216811
08 0 0 0 0 0
-
317509
213635
99
Total
Compr
ehensiv
e
Income 0 0
216811
08 0
179100
36 0 0 0
-
317509
392736
35
Divide
nds
Paid 0 0 0 0
-
170679
53 0 0 0 0
-
170679
53
Recipr
ocal
Divide
nd
Receiv
ed 0 0 0 0
383506
6 0 0 0 0
383506
6
Share
Based
Payme
nts 0 0 0 185507 0 0 0 0 0 185507
223468
75
145400
890
-
369027
40
122139
5
131297
799
-
107010
93
-
253767
43
-
107053
08 0
216581
075
Cash Flow Statement-:
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Cash Flow Statement is also known as Statement of Cash Flows that represents inflow
and outflow of Cash. This Cash Flow statements acts as that is a bridge between changes in
Balance Sheet and income statements, which shows that how money is moving in and out from
business(Greco, Figueira, & Ehrgott, 2016). This statement reflects the liquidity of firm and
provide financial information regarding the solvency and its ability of change in circumstances
of cash flows in near future. There are three sections in Cash Flow Statements, they are-:
1. Cash Flow From Operating Activities-:These can be said as inflow and outflow of cash
for principal Business activity. These Cash Flow includes purchase, sales and other
expenses that are directly related to generate revenue in the company.
2. Cash Flow from Investing Activities-: These includes all the long term investments and
capital repayments that are done in current year. This type of Cash Flow includes any
acquisitions or disposal of non-current assets, buying and selling of property plant and
equipments or any other financial assets.
3. Cash Flow From Financing Activities-: These are those activities of inflow and outflow
of cash that results in change in composition and size of capitals and borrowings of the
company, These cash flows mostly involves repayments and borrowings, issue and buy
back of shares and any payment of dividend is also treated as cash flow from financing
activities(Islam, 2014).
The Following is the uses of source of finance in current year with the abstract of Cash flow
statement of Pan African Resources PLC-:
Statement of Cash Flows for the year ended 30th June 2017 (Financial Statement
of Pan African Resources PLC, 2018)
Particulars Amount in GBP
Cash Flow From Investing Activities
Net Cash that is generated from operations after deducting tax royalties
and finance costs 19800729
Dividends paid -13290429
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Net Cash that is generated from operating ActivitFinancial Statement of
Pan African Resources PLC. 2018ies 6510300
Cash Flow From Investing Activities
Additions to Property Plant and Equipments -35518177
Additions in Intangible Assets -22817
Increase in Long term loans -1207492
Loans to subsidiaries 0
Effect of Foreign Exchange rates 0
Proceeds from disposal of investment 1381005
Proceeds on disposals of property, plant and equipment 396604
Acquisition of Uitkomst Colliery 0
Treasury share buyback transaction 0
Proceeds from disposal of subsidiary, net of cash 6586262
Net cash used in investing activities -28384615
Cash Flow From Financing Activities
Proceeds from borrowings 47750265
Borrowings repaid -53964004
Settlement of cash-settled share option costs -3299545
Repayment of financial instruments -1389720
Increase/(decrease) in loans from subsidiaries 0
Effect of foreign exchange rate changes on loans from subsidiaries 0
Shares issued 40807338
Share issue costs -1427720
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Net cash generated from financing activities 28476614
Net increase/(decrease) in cash and cash equivalents 6602299
Cash and cash equivalents at the beginning of the year 2658947
Cash and cash equivalents of discontinued operations -51903
Effect of foreign exchange rate changes 237801
Cash and cash equivalents at the end of the year 9447144
Interpretation-:
The above cash flow states that where the funds had been utilised in current year and
from where it had been sourced. It shows mainly cash had been generated from the operating
activities and had been utilised for purchase of property, plant and equipments. In the current
year there was a further issue of shares and also the Pan African Resources PLC had taken huge
amount of borrowings in current year. They had also sold an subsidiary in the current year as that
was loss making concern to them. So, these were the sources of finance where the funds had
been brought in business and further utilised.
(d)Ratio Analysis for measuring business performance and financial health of Pan African
Resources PLC
Ratio analysis can be said as it is a quantitative analysis of any company financial
statements. These ratios are used to evaluate different aspects of organisation financial and
operating performance.
Particulars Ratio 2016 Ratio 2017 Remarks
PE Ratio 13.48 12.06 Higher PE ratio indicates that investors are
anticipating more growth in future and also
indicates that stock price is overvalued. For
investor it is better to invest when there is
lower PE ratio as it indicates that price of
stock is undervalued(Key Ratios of Pan
African Resources PLC, 2018).
Dividend Coverage
ratios
2.66 1.3 This measure company ability for paying
dividends and as this ratio is low for Pan
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African Resources PLC, it states that they
are failing to invest more funds in to the
business as to pay same dividend which they
had paid in earlier years.
Earning Per Share 9.27p 10.72p Increase in Earning per share means that
company is performing well and they are
effectively using there resources. This may
attract investors as they are getting good
returns on there investments.
Gross Profit Margin 20.63% 11.88% Decrease in Gross profit percentage
generally occurs because of rise in the Cost
of Goods Sold(Key Ratios of Pan African
Resources PLC, 2018). A low gross profit
margin indicates that are chances that Net
profit may erase and that may lead to net
loss.
Return on Capital
Employed
22.34% 10.52% This ratio of return on capital employed
shows that how much revenue is earned for
each dollar of capital that is employed by
investor. Higher Return on Capital
employed ratio is favourable for investors,
but as there in this case of Pan African
Resources PLC the ratio had been declined
which states that they are not using there
resources efficiently and can't provide good
returns to investors.
Current Ratio .68 .94 Increase in current ratio indicates that Pan
African Resources PLC are capable for
paying there short term liabilities. An ideal
current ratio is 1 so as company is near to 1
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it should see that they should be maintain
current ratio above 1,
Debt Equity Ratio .46 29 Decline in Debt Equity Ratio indicates that
company is less leveraged and also has
stronger equity position and it also indicates
that Pan African Resources PLC may be not
taking advantage of increase in profits that
financial leverage may bring for them((Key
Ratios of Pan African Resources PLC,
2018)).
Quick Ratio or
Liquidity Ratio
.55 .78 Higher Acid test ratio indicates that business
may be holding more of cash with them that
can be utilized for investment purposes. An
ideal Quick Ratio is 1. As it is below 1 it can
be said company may not have enough
funds to repay there short term obligations.
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(e)Comment upon Pan African Resources PLC stock performance in the stock market.
This above chart represents data from the Oct 2016 to Oct 2018 which shows that the
stock is continuously going down as also it had been seen while analysing the Financial
performance of Pan African Resources PLC that the operating margin I.e gross profit had
become half from the previous year which directly states that company in not performing well in
there operating activities(Stock Price of Pan African Resources PLC, 2018). The following are
the reasons why the share price of Pan African Resource PLC had been gone down-:
1. There is major selling of shareholding by the shareholders-: As continuously the
performance of company is not going well, shareholders sell there investments, that
increases the supply of shares and decline the share prices.
2. As in the above analysis it is ascertained that the financial performance of Pan African
Resources PLC is not good, it represents a negative research paper for them. So this
affects directly affects share price as by the negative report the shareholders may sell
there investments.
3. If there in the market the numbers that are produced are wrong about the earnings,
shareholders may sell there shares as determination of the company financial position is
very important for investment in any company.
Pan African Resources PLC recent return on equity was calculated as 6.39%, and if it
compared with its whole industry performance that is of 10.94% over the past years. Pan
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African Resources PLC results indicates that there is an inefficient operation by its subsidiaries.
Indirectly it can be said as performance of the Pan African Resources PLC are not up to the
mark(Stock Price of Pan African Resources PLC, 2018). So, investors may not make investment
in company in short term but may invest if they want to do long term investment. As is long run
these stock may perform better and can provide higher returns.
CONCLUSION
The above project report that is presented concludes that there are many challenges that
are to be faced by Pan African Resources PLC in following Corporate Governance as because
there are many rules and regulations. This project report also sums up about capital investments
that are made by them for continuing operation in the company. This project reports also
concludes that they had utilized there all finances in effective manner. Overall Financial
performance of Pan African Resources PLC sums up that they are not performing well and may
also loose there investors if they will not provide goods returns to them. This project report also
concludes that the Return on Capital Employed of the company is declining continuously that
can create problem in raising funds in near future.
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REFERENCES
Books and Journals
Armstrong, C. S., Blouin, J. L., Jagolinzer, A. D., & Larcker, D. F. (2015). Corporate
governance, incentives, and tax avoidance. Journal of Accounting and Economics. 60(1). 1-17.
Brigham, E. F., Ehrhardt, M. C., Nason, R. R., & Gessaroli, J. (2016). Financial Managment:
Theory And Practice, Canadian Edition. Nelson Education.Financial Statement of Pan African
Resources PLC. 2018
Greco, S., Figueira, J., & Ehrgott, M. (2016). Multiple criteria decision analysis. New York:
Springer.
Islam, M. A. (2014). An analysis of the financial performance of national bank limited using
financial ratio. Journal of Behavioural Economics, Finance, Entrepreneurship, Accounting and
Transport. 2(5). 121-129
Jacoby, S. M. (2018). The embedded corporation: Corporate governance and employment
relations in Japan and the United States. Princeton University Press.
Tricker, R. B., & Tricker, R. I. (2015). Corporate governance: Principles, policies, and
practices. Oxford University Press, USA.
Vogel, H. L. (2014). Entertainment industry economics: A guide for financial analysis.
Cambridge University Press.
Vogel, Harold L. (2014). Entertainment industry economics: A guide for financial analysis.
Cambridge University Press.
ONLINE
Stock Price of Pan African Resources PLC. 2018. [Online]. Available Through
<https://www.londonstockexchange.com/exchange/prices-and-markets/stocks/exchange-
insight/trade-data.html?fourWayKey=GB0004300496GBGBXAMSM>
Financial Statement of Pan African Resources PLC. 2018. [Online]. Available Through
<http://www.panafricanresources.com/wp-content/uploads/Pan-African-Resources-
integrated-annual-report-2017.pdf>
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