ACC10007: Financial Analysis of Premier Investments Cash Flows

This report presents a cash flow analysis of Premier Investments Limited for the years ending March 31, 2016, 2017, and 2018. The analysis examines the company's cash flows from operating, investing, and financing activities, using data from the annual reports. Operating cash flow increased in 2...Read More

Cash Flow Analysis
The table below summarises the cash flows of the Company for the years ended
31st March 2016, 2017 and 2018:
Particulars 2018 2017 2016
Receipts from customers 1,303,577 1,162,989 1,211,741
Payment to suppliers and employees (1,120,075) (1,063,463) (1,024,780)
Interest received 3,702 6,715 8,197
Borrowing costs paid (7,232) (5,722) (4,933)
Income taxes paid (46,121) (51,434) (37,800)
Net Cash flows from operating
activities
133,851 97,837 103,663
Dividends received from listed equity inv. 1,769 - -
Dividends received from associates 11,267 10,551 9,836
Payment for trademarks (859) (325) (128)
Purchase of investments - (102,365) (29)
Proceeds from disposal of PPE 326 5 204
Proceeds from disposal of asset class. As
HFS
- 1,000
Payment of PPE and leasehold premium (53,172) (105,634) (45,046)
Net Cash flows used in investing
activities
(40,669) (197,768) (34,163)
Equity dividends paid (88,468) (80,352) (68,969)

Proceeds from borrowings 107,000 155,000 111,069
Repayment of borrowings (105,000) (87,074) (109,571)
Payment of finance lease liabilities - - (14)
Net Cash flows used in financing
activities
(86,468) (12,426) (67,485)
Net (Decrease) increase in cash held 6,714 (112,357) 2,015
Analysis of each category of cash flows is as under:
1. Cash flow from operating activities:
Operating cash flow of the company has increased considerably in the year
2018 as compared to the previous two years, this increase in operating cash
flow is due to increase in the amount of receipts from customer from
$1,162,989 in 2017 to $ 1,303,577 in the year 2018. Such increase in receipt
from customers has not been fully set off by the increase in payment to
suppliers, resulting in an increase in the cash flow from operating activities.
Other amounts also have changed, but these are low value items and doesn’t
affect the cash flow from operations. For example, although the amount of
interest received by the company has halved in 2018 as compared to 2016,
but the net impact of cash flow from operations is a reduction of $ 3,013.
2. Cash flow from/ (used in) investing activities:
The year 2017 has been an exceptional year for the company, where the
company paid an amount of $ 105,634 as leasehold premium, also, an
amount of $ 102,365 has been paid for purchase of investment in the same
year. Whereas, in the year 2018, the company has not purchased any
investment and the amount of leasehold premium has reduced considerably
to $53,172.

In the year, the company has used an amount of $ 40,669 in the year 2018,
which is significantly lower than the amount used in the year 2017, i.e. $
197,768 and slightly higher than the amount that was used in the year 2016,
i.e. $ 34,163.
Payment for leasehold premium takes up the major portion of amount used
in investing activities. And the company has been consistently receiving
dividends from associates, which has been increasing in the last three years.
3. Cash flow from/(used in) financing activities:
In the three years under consideration, company has been paying off the
borrowings and also availing the borrowing on the other hand. The gap
between fresh borrowings and amount repaid is not significant in years,
other than 2017, where the net borrowings made by the company was $
67,926.
Further, company has been consistently paying dividends to the equity
shareholders.
Overall cash flow analysis:
The company has been generating positive cash flows, including operating,
financing and investing activities, other than year 2017, which has been an
exceptional year, in terms of cash used in financing activities, which was
significantly higher, due to purchase of investments and high payment for
leasehold premium, as compared to other years.
So, overall, company has been able to generate positive cash flows, after
paying off the loans and borrowing costs.

Other Relevant Information
Premier Investments has an earnings per share of 0.34, against the market average of 0.84 and
the sector average of 0.50. Which indicates that the company has been generating lesser earnings
as compared to the industry or sector, in which it operates. This could be driven by the capital
structure of the company, which has high debt component.
Driven by the earnings per share, the company has the highest price earning ratio as compared to
the industry and sector in which the company operates.
As per the latest report, clothing retailing industry has faced various challenges over the last five
years. These challenges includes issues such as increasing rentals in Australia, increasing
competition, as a result of entry of new entities. Future seems bright for the industry, which is
expected to grow at 1.8% annualised over next five years. Most retailers, including Premier
investments have expanded their online sales channel (Ref: Clothing retailing – Australian
market Research Report, August, 2019, https://www.ibisworld.com.au/industry-trends/market-
research-reports/retail-trade/other-store-based-retailing/clothing-retailing.html).
Premier investment company’s share in online market sale has grown from 1.1% in FY 2011 to
7.1% in FY 2017.

Further, the company targets to open 40 new stores over next three years, which would help
company outgrow the expected growth that the overall market expects over coming years.
References:
- Premier Investments Limited (PMV) –Overview.
https://www.investsmart.com.au/shares/asx-pmv/premier-investments-limited, (accessed
on 13 September, 2019)
- Premier investments, Ltd. (2018). Annual Report. Retrieved from
https://www.premierinvestments.com.au/wp-content/uploads/2018/10/2018-Annual-
Report-to-Shareholders.pdf, (Accessed on 13 September, 2019)
- Premier investments, Ltd. (2017). Annual Report. Retrieved from
https://www.premierinvestments.com.au/wp-content/uploads/2017/10/Premier-
Investments-Ltd-Annual-Report-29.07.17.pdf, (Accessed on 13 September, 2019)
- Premier investments, Ltd. (2016). Annual Report. Retrieved from
https://www.premierinvestments.com.au/wp-content/uploads/2016/10/PMV-2016-
Annual-Report.pdf, (Accessed on 13 September, 2019)
- Clothing retailing – Australian market Research Report. August, 2019. Retrieved from:
https://www.ibisworld.com.au/industry-trends/market-research-reports/retail-trade/other-
store-based-retailing/clothing-retailing.html. (Accessed on September 13, 2019)