Financial Analysis of Coca-Cola Amatil Limited: A Business Report

Desklib provides past papers and solved assignments for students. This report analyzes Coca-Cola Amatil's financial performance.

Business Report- Coca Cola
Amatil Limited
Student Name:
Student ID:
1

Executive Summary
This study has been designed in the format of a business report and contains a description of
the financial position of Coca Cola Amatil Limited. The report has been developed keeping
in mind the business operations of the company in the Asia-Pacific region, and its
investments and information about its Board of Directors. The report also entails essential
information about the ethical judgements taken by the managers of the company. Towards the
end of the report, various statistical tools have been used to provide a depiction of the
financial standing of the company. The mathematical tools in the likes of liquidity ratios,
asset management efficiency and capital structure have been used in the body of the report.
The calculations and the formulas have been shown at the appendix of the report.
2

Table of Contents
Introduction................................................................................................................................4
Summary of the company..........................................................................................................5
Board of Directors of the company............................................................................................5
Characteristics of the Board.......................................................................................................7
Investment and financing decisions of the company.................................................................8
Recommendations of the ASX corporate governance council..................................................9
The opinion of the auditors......................................................................................................10
Independence of the auditors...............................................................................................10
Maintenance of ethics in business operations..........................................................................10
Top investors of Coca-Cola Amatil.........................................................................................11
Analysis of financial statements of Coca-Cola Amatil............................................................11
Conclusion................................................................................................................................13
Reference List..........................................................................................................................14
Appendix..................................................................................................................................15
Appendix I............................................................................................................................15
3

Introduction
Coca Cola Amatil, headquartered in New South Wales, Australia, and is one of the largest
bottlers of non-alcoholic beverage in the Asia-Pacific region. With operations in over six
countries, it is also one of the major bottlers in the world. This report aims to identify what
makes the company efficient in its field and recognise the financial factors that allow the
company to have an edge over its competitors. The investments and business operations of
the company have been reviewed. The guidelines of the corporate governance council of the
Australian Stock Exchange (ASX) has been presented here, and it will provide an idea about
the compliance procedures of the company. Moreover, the comments of the auditors of the
company have been reviewed. It will give an idea about their view of the financial
jurisprudence of the company. The financial position of the company has also been reviewed
using various financial and statistical tools, that highlight the major areas of the company's
business efficiency.
4

Summary of the company
Coca-Cola Amatil is situated in Australia and is one of the largest companies in the Asia-
Pacific region that bottles non-alcoholic beverages. Besides, it is also one of the five largest
Coca-Cola bottlers in the world. The company has its operations in six major countries of the
world – Australia, New Zealand, Papua New Guinea, Indonesia, Samoa and Fiji. Coca-Cola
Amatil operates in the beverage industry, and the Coca-Cola company owns the majority of
its shares. The company is listed in the Australian Stock Exchange (ASX) and was founded in
1904. The revenue of the company as in 2014 stood at $5.12 billion, with a net income of
$79.9 million in the Australian currency (ccamatil.com, 2019). However, the annual report of
the company states that its trading revenue in 2016 amounted to $4.93 billion, which recorded
a decrease of 2.8%. As in December 2014, the company employed over 14,700 individuals.
Coca-Cola Amatil recognises that it has over 270 million potential customers all over the
world and over 950,000 existing customers. It deals with over 130 brands and maintains 46
warehouses in the six countries it operates in.
Board of Directors of the company
The table below lists the directors of the company, including their gender, skills and
qualifications:
Table 1: Board of Directors of the company and their details
(Source: ccamatil.com, 2019)
Name Gender Appointment Skills Qualifications Remuneration
Ilana
Atlas
Female February 2011 Financial and
legal
knowledge,
with experience
in the field of
human resource
Bachelor of
Jurisprudence,
Bachelors and
Masters of
Laws
$124,000
Alison
Watkins
Female March 2014 Learning in the
field of food
and beverages,
with experience
in the retail
Bachelor of
Commerce,
Fellow
Australian
Institute of
$118,000
5

industry Company
Directors and
Fellow CA
John
Borghetti
Male December 2015 Over 40 years’
experience in
the field of
aviation
Bachelor of
Commerce
$108,000
Catherin
e
Brenner
Female April 2008 Knowledge
about corporate
finance. Has
been an
investment
banker
Bachelor of
Laws and
Economics,
and MBA
$124,000
Julie
Coates
Female March 2018 Experience in
the fields of
logistics
manager and
managing
director
Bachelor of
Arts and a
Diploma in
Education
$118,000
Martin
Jansen
Male December 2009 Possesses
knowledge
about business
management
and operations
management
Bachelor of
Commercial
Holdings
$124,000
Mark
Johnson
Male December 2016 Served
companies in
the fields of
auditing,
accounting and
due diligence
Bachelor of
Commerce,
Fellow CA,
CPA Australia
and Fellow
AICD
$124,000
Paul
O’Sulliv
Male March 2017 Proficient
knowledge in
Bachelor of
Arts
$102,000
6

an the field of
telecommunicat
ions
Krishnak
umar
Thirumal
ai
Male March 2014 Experience in
the fields of
marketing, sales
and managing
people
Bachelor of
Engineering,
MBA and
Advanced
Management
Program
$118,000
Characteristics of the Board
It has been observed that the Board of Directors of the company comprise of both male and
female individuals. The current Board consists of nine members, each possessing relevant
experience and expertise in the fields of commerce, logistics, finance and engineering. It can
be seen after the assessment of the details of directors that the minimum salary of the director
amounts to $124,000. On the other hand, the minimum remuneration to director amounts to
$102,000. The composition of the board of directors of the company includes one Executive
Director, two Non-Executive Directors, and six other Independent Non-Executive Directors.
The table above provides details about the qualifications and expertise possessed by the
directors of the company.
The directors in the Board of the company also held a high degree of specialised
qualifications that help them in the management of the company. The Board of Directors of
the company are qualified in the fields of Jurisprudence, Due Diligence, auditing, accounting,
finance and others. As a minimum qualification, the individuals must hold a Bachelor degree
any of the three prominent streams. As a higher degree of skill, it is desired that the
individual holds a Master's degree or any relevant professional degree. Three of the directors
of the company are practising Chartered Accountants or Engineers. The Board of Directors of
the company monitor over the people and the related party committee, and other committees
in the likes of the ‘audit and finance committee’ and the ‘risk and sustainable committee’.
The directors of Coca-Cola Amatil receive accounting reports from the group managing
directors, and inputs about the compliance of the company from the Company Secretary
(Chen and Komal, 2018). Therefore, it is essential that the directors of the company have
proficient knowledge in the matters of finance and management.
7

Table 2: Managerial structure of Coca-Cola Amatil, focusing around its directors
(Source: ccamatil.com, 2019)
Investment and financing decisions of the company
In its annual report, Coca-Cola Amatil states that since the company acts as one of the largest
bottlers of non-alcoholic beverages in the world, it has to invest in infrastructure
continuously. The company ensures that the investment activities are large in scale; it incurs
the minimum cost to the company. In its operation in six countries, the company invested in
machinery and capital assets that further help in increasing the efficiency and productivity of
the company. Besides, the company undertakes extensive research and development
activities, which constitute the majority of its expenses in the current financial year. The other
prominent area of investing activity made by the company is in the field of marketing
(mycca.com.au, 2019). The subsidiaries of the Coca-Cola company and Coca-Cola Amatil
jointly work in the marketing activities in every country of its operation throughout the year.
The investment in raw materials includes glass and PET bottles, closures, aluminium cans
and various other packaging materials. The investing and financing decisions of the company
8

help it to perform in the competitive market effectively and gain modest advantages over its
rivals (Bloomberg.com, 2019).
Recommendations of the ASX corporate governance council
Since Coca-Cola Amatil is an entity listed in the Australian Stock Exchange, it has to adhere
to the recommendations made by the corporate governance council. Even though adherence
to these recommendations is not mandatory, the Commission proposes that all entities adhere
to it (asx.com.au, 2019). The recommendations of the council have been listed below:
Table 3: Recommendations of the Corporate Governance Council of ASX
(Source: asx.com.au, 2019)
Recommendations Adherence
Lay the foundations for
management
All listed corporations should delegate the respective roles
to everyone involved in the management
Structure the board to add
value
The board of directors should have the relevant skill, size
and composition
Responsible and ethical
action
Every listed corporation should act ethically and in a
responsible manner
Safeguard the integrity in
corporate reporting
Formal guidelines should be compiled while preparing
financial reports. The reporting format should be globally
accepted and recognised
Make timely disclosures The financial reports should be disclosed on a timely basis.
Every listed company should do annual disclosures of
financial information
Respect rights of security
holders
The shareholders should be provided with important
information about the financial status of the company
Recognise and manage risks There exist numerous risks – in the likes of familiarity,
advocacy, self-interest, self-review and others. Every
company must possess a sound risk-management system
Fair and responsible
remuneration
The remuneration to every employee should be fair and
justifiable. This helps in employee-retention and motivates
them to work better.
9

The opinion of the auditors
Ernst and Young conducted the audit for the company in the financial year 2017. The
auditors of the Coca-Cola Amatil Limited has stated in the annual report that the company
has complied with the regulations of the Corporations Act 2001 (legislation.gov.au, 2019),
and has adhered to the Australian Accounting Standards as laid down by the Act. The opinion
of the auditor also reflects that the financial statements of the company provide a ‘true and
fair view’ of the financial standing of the company. The auditors who reviewed the financial
position of the company also stated that the company also deals with information that is not
financial. They state that "the directors of the company are responsible for such information."
However, the auditors state that they were unable to review such information about the
company and do not hold any responsibility for the same. The opinion of the auditor also
states that the directors of the company are responsible for the preparation of the financial
reports of the company, and they have duly maintained the true and fair view as required by
the Australian legislation.
Independence of the auditors
In the declaration of the auditor's independence, the auditors state that the company was not
involved in any form of infringement of the independence of the auditor, as stated in the
legislation. Moreover, no breach in the code of conduct was performed by the management of
the company to the best of their knowledge.
Maintenance of ethics in business operations
Coca-Cola Amatil takes careful precautions to ensure that the standard of ethics and ethical
judgements of the company are maintained (Dimopoulos and Wagner, 2016). The following
steps are taken by the company to endure compliance with ethical standards:
 Training of ethical decision-making – The company communicates its ethical standards
to its employees and trains them in a way that would help them maintain it. The training
aims to improve the moral business decision-making of the employees
 Whistleblower protection - Under this step, the company ensures safeguard against the
unscrupulous and suspicious activities of individuals working in the company or
otherwise. Whistle-blowing activities include insider trading and revealing price-sensitive
information about the company (Richard et al., 2018). To address this issue, the company
ensures adherence to legal regulations
10

 Codes of conduct – The codes of conduct reflect the principle values of the company and
what it expects from its employees. Maintenance of a strict code of conduct in the
company ensures that the ethical standards are met. The codes of conduct in Coca-Cola
Amatil are developed for its managers as well as its employees
Top investors of Coca-Cola Amatil
The shares of the Coca-Cola Amatil Limited company are owned primarily by three
corporations – The Coca-Cola Company, HSBC limited and National Nominees. The portion
of their shareholding in the company has been listed below:
 Coca-Cola Company is holding 30% of its shares. Since Coca-Cola is the parent
company of Coca-Cola Amatil company, it plays an anchoring role in the bottler
industry worldwide.
 HSBC limited holding 16% of its shares. The company has been a prominent investor
for Coca-Cola Amatil and finances the company's operations
 National Nominees are holding 11% of its shares. The investment of this company in
the shares of Coca-Cola Amatil help them in financing their monetary transactions.
Analysis of financial statements of Coca-Cola Amatil
The annual report of the company can be used to provide an estimate of its financial position.
Various financial and statistical tools in the likes of liquidity ratios, profitability ratios and
asset-management ratios can be used to ascertain the company's financial standing. Its current
and quick ratio can ascertain the liquidity of the company. The current ratio of the company
stands at 1.52. This is lower than the ideal current ratio, which must be at 2. This states that
the company is not efficiently able to pay off its current liabilities using its current assets.
Also, the quick ratio of the company stands at 1.15, which is higher than the ideal quick ratio
of 1. This reflects that the current assets of the company (minus inventories) are unable to
meet its legal obligations (Fuhrer et al., 2017).
The assets management ratio represents the efficiency of a company to produce revenue
using its assets. It is measured by the use of various ratios like the inventory turnover ratio,
fixed assets and total assets turnover ratio. The inventory turnover ratio of the company is
7.36, which is higher than the ideal range of 4 to 6. This indicates that the company
proportion of inventory restocking concerning its sales amount is high. The fixed assets
turnover ratio and total assets turnover ratio of the company stands at 1.60 and 0.80
11

respectively. This indicates that the proportion of total and fixed assets of the company
concerning its sales is healthy (Lee et al., 2015).
The capital structure of the company will represent its reliance on equity and debt. The total
amount of share capital of the company stands at $1,920 million. On the other hand, the debt
capitalisation of Coca-Cola Amatil indicates that the net borrowings by the company in the
financial year stands at $1,929 million. Even though the difference between the debt and
equity of the company is not large, the company’s debt-preference can be understood.
Therefore, it can be concluded that the company prefers to finance its transactions primarily
by debt.
The profitability of a company can be ascertained utilising various ratios – gross profit and
net profit ratios are the most prominent profitability ratios. The gross profit ratio of the
company amounts to 37.7%, which indicates that the company maintains a healthy rate of
profit on its sales. However, the net profit ratio amounts to 9.34%, which is relatively lower
in comparison (Margaretha and Supartika, 2016). This is because of the reduced amount of
net profit of the company. The market value of the shares of Coca-Cola Amatil stands at
AUD 8.75, which is a 0.34% increase as compared to the previous financial year. Its cash
flow statements can determine the cash flow management of the company. The cash flow
statement of a company is divided into three parts, those that represent operational, investing
and financing activities. The operating cash inflow of the company stands at $589 million,
while the company experiences outflows of cash in the investing and financing activities
worth amounts of $182 million and $684 million respectively.
After analysis of the financial reports of the company, it can be stated that even though the
company is a profitable one, certain areas can be improved. For instance, the company needs
to increase its current assets, to improve its current and quick ratios. Also, the net profit needs
to be increased to maintain an ideal net profit ratio. This can be done by reducing production
and administration expenses. Moreover, the restocking of the inventory should be managed
concerning its sales. The financing and investing activities need to be checked, as they result
in negative cash flow. This affects the cash held by the company at the end of the year.
12