Business Combination Valuation Essay: Financial Performance Of Woolsworth Group Ltd.

Business Combination Valuation Reserve (BCVR):

At acquisition date acquirer must recognise the fair values of the assets, liabilities and contingent liabilities of the subsidiary. These FV adjustments are commonly recorded as part of the consolidation process and not recorded by the subsidiary unless specified.

Pre-Acquisition Elimination entry: eliminate the carrying amount  of the parent’s investment in the subsidiary. Group equity then reflects only equity transactions with external parties (parent equity transactions are eliminated).

When the carrying amount of the subsidiary's assets are different from fair values AASB 10 sets out that the business combination valuations are done in the consolidation

The differences being recorded in the business combination valuation  reserve (BCVR)‏

Prepare consolidations for wholly owned subsidiaries

Prepare consolidations for wholly owned subsidiaries where assets and liabilities may not necessarily be recorded at fair values.

Composition of the Board of Directors

The company which is selected for the purpose of this assignment is Woolsworths Group Ltd. The company is engaged in retail distribution business among the customers of the business and operates in Australia. The board of directors of Woolworth group ltd is made up of both executive and non-executive directors which are either independent or dependent which is stated in the financial statements of the business (Woolworthsgroup.com.au. 2018). The independent directors of the business are Gordon Cairns, Brad Banducci, Jillian Broadbent, Holly Kramer, Siobhan Mckenna, Scott Perkins, Kathryn Tesija and Michael Ullmer.

The board of directors of the company is made up of 8 directors in total and gender of men is to women which makes the composition of the board of directors in the ratio of 1:1. In other words, there are four female directors and four directors which forms the board of directors of the business.

The independent chairman of the board of directors Gordon Cairns has a MA(hons) degree and he has an over 30 years experience in retail and food industry. Brad Banducci is the managing director of the company and has a degree of MBA, LLB, B.Com (Accounts) and has a vast experience. Prior to working for the company, he has a working experience of 15 years with Boston Consultancy Group which forms just a part of his experience. Holly Kramer is an independent non-executive director of the company and has a degree of BA(hons) and MBA degree as well. Holly Kramer has over 20 year’s worth of experience in management, sales, Marketing and also had a job at Fords Motor Company, Telstra.

Gordon Cairns who is the chairman of the board also is a member of all significant committees which operates in the company which are Audit Risk Management and Compliance Committee, People’s Performance Committee, Sustainability Committee and Nomination Committee. Gordon Cairns is also the chairman of the nomination committee. Brad Banducci is only a member of the board of directors and is not a member of any committee. Jillian Broadbent is a member of all the committees which are mentioned above expect People’s Performance Committee. Holly Kramer is a member of all the committees except for Audit Risk Management and Compliance Committee and she is also the chairman of People’s Performance Committee as per the financial statements of the company (Woolworthsgroup.com.au. 2018). Siobhan Mckenna is a member of all the committees except for sustainability committee. Scott Perkins is a member of all the committees and he is also the chairman of the sustainability committee which focuses on sustainable practices of the business. Kathryn Tesija is only engaged as a member of the nomination committee. Michael Ullmer is a member of all the committees except for people’s performance committee. He is also the chairman of Audit Risk Management and Compliance Committee.

Financial Performance of Woolsworth Group Ltd

As per the financial statement of the company, the company does not have a many operating sites other than Australia and New Zealand where the business operates as a retail store and food supplying brand. The company has variety of diversified business such as hotel business, Endeavour Drinks, Big W and other unallocated business. The net financing cost of the business is shown to have fallen by 21.2% which is due to the lower average debt which is employed by the business and also due to lower borrowing costs for the same.

Woolsworth Group is regarded to be one of the top companies of Australia and is also one of the largest revenue generating companies in Australia. The reason for choosing such a company is due to the overall involvement of the company in retail and food supply business in Australia and also due to the financial performance of the business during the year 2017.

The net profit which is generated by the company during the year is shown to be $ 1533.5 million which is attributable to the shareholders of the business and such has improved from the previous year’s figure tremendously. In previous year, the company faced a loss of about $ 1234.8 million as shown in the statement of profit and loss account of the company. The performance of the business is commendable as it has turned a loss situation into profit one. The amount of dividend which is paid by the business during 2017 has reduced from previous year and it I shown as $ 540.9 million in 2017 and $ 1184.8 million in 2016. The board of directors of the business has declared a 50 cents dividend for the current year thus making the total dividend offered by the company at 84 cents per share which shows that the dividend rate of the country has increased from previous year by 9.1% and in addition to this, the business offers regular dividend to its shareholders from year to year basis as per the chairman’s report.

As per the plan of the management of Woolsworth, the company will be focusing on making more investments in Big W as this is an area which is quite preferred by the customers. The company has not been making that much profit from the area but still the plan of the business is to continue its investment in the product. The business will continue to invest in the business which is established in New Zealand which is clear from the annual reports of 2017 of the company. The main focus of the company is on the five strategic areas which are establish a customer and store led customer team, generating sustainable performance in food, Evolving the drink business, empowering the business portfolio and becoming a lean retailer through end to end process and system excellence.

Areas of Focus for the Company

One of the major challenges which the business faces is due to the changing environment of retail business and the new entrants and the level of competition which is exist in the market and the management of Woolsworth has developed an enterprise risk management framework which focuses on taking care of any risks which the business faces (Sadgrove 2016). The business has put the interest of the customers at the center of the business and therefore enjoys good reputation which is an asset for the company as such breeds brand loyalty which can combat the changing market risks and threats of competitors. The company has launched its corporate social responsibility plan during the year which targets to achievement by 2020. The plan aims to promote sustainability and reduce the impacts on the environment which the business influences (Pyo and Lee 2013). The different methods which is used for classification of the business expenses is to ensure that there is simplicity in the displaying the various expenses which is incurred by the business.

The prime users of the financial statements who are the shareholders of the company are not only concerned with the information which is provided on the parent company but also with the financial performance of the entire group which includes subsidiaries, branches of the company (Carraher and Van Auken 2013). The main reasons for preparation of the financial statement of the company and present the same is done so that the financial performance of the business can be depicted to the prime users of the financial statements (Bisogno, Santis and Tommasetti 2015).

As per AASB 10, non-controlling interest are to be treated as part of the consolidated equity and should not be included in the debt capital of the business as such non-controlling interest refers to the shareholders of the subsidiary company which are not owned by the holding company (Howieson 2013). If such is taken as debt than it will violate the provisions of AASB 10 and the treatment will be wrong.

Reference

Bisogno, M., Santis, S. and Tommasetti, A., 2015. Public-Sector consolidated financial statements: An analysis of the comment letters on IPSASB’s exposure draft no. 49. International Journal of Public Administration, 38(4), pp.311-324.

Carraher, S. and Van Auken, H., 2013. The use of financial statements for decision making by small firms. Journal of Small Business & Entrepreneurship, 26(3), pp.323-336.

Howieson, B., 2013. Defining the Reporting Entity in the Not?for?Profit Public Sector: Implementation Issues Associated with the Control Test. Australian Accounting Review, 23(1), pp.29-42.

Pyo, G. and Lee, H.Y., 2013. The association between corporate social responsibility activities and earnings quality: Evidence from donations and voluntary issuance of CSR reports. Journal of Applied Business Research, 29(3), pp.945-962.

Sadgrove, K., 2016. The complete guide to business risk management. Routledge.

 Woolworthsgroup.com.au. (2018). Investors - Woolworths Group. [online] Available at: https://www.woolworthsgroup.com.au/page/investors/ [Accessed 19 May 2018].