Key Concepts and Questions

CHAPTER THREE

Again we are covering some quite elementary aspects of Accounting.  Being introduced to financial statements – I would have thought that most students would have done this in past courses like I did with Principles of Accounting.  Perhaps this course is offered in other strands, outside of Accounting, and is more introductory than I thought.

I have always wondered why there is such freedom in the naming conventions and set out of financial statements.  When so much of Accounting is rigid, set and uniform, why is this not applied to the financial statements?

I am such a geek – this really is my kind of party!

I had not read this chapter prior to completing my KCQ’s for my company and I wish I had.  I really did struggle when reading the annual report with why they separated the parent from the group.  Why separate one entity but not the multitude of others?  I also struggled with understanding shares in a company (I have never worked for a limited company before) and how that affected the business.  I can see now the purpose of separating the parent company when reporting the financial statements.  This really does throw light on my company’s statements.  This is good, we are getting into the meatier understanding of financial statements and I am learning.  I do like learning.

That was an interesting little diversion about currency and retirement villages.  I am still getting used to this style of writing.

My company does not have any “non-controlling interests” but does have “cashflow hedge reserve” and “share options reserve”.  I believe Share options reserves are the shares owned by the Executive Team through the incentive program and I suspect the Cashflow hedge reserve is the shares owned by the board members.

I am glad that Martin said not to worry about fully understanding all elements of the Statement of Changes in Equity.  I thought I understood this statement until I saw my company’s.  With all that info relating to shares and dividends and reserves etc I am quite lost.

I am very interested in learning more about the Cashflow Statement.  I prepare the Cashflow for my workplace every month.  It is quite old and needs an overhaul.  It is one of my KPI’s for the first half of this year to revamp our Cashflow and make sure it is robust, relevant and well presented.  While I know I have a good understanding of my work’s cashflow, any further training and knowledge gained will only help me make better, more informed changes.

Very interesting read regarding ratios.  My workplace removed all ratio reporting from its monthly report to the Board about six months ago, believing it to be a little irrelevant and that it muddied the waters for the non-accounting background board members.  I am challenged after reading this section to reflect on our report, I think it is ok that we are no longer using the ratios’ but are we providing sufficient an analysis in other ways?

Dividends!  Knowledge on dividends.  I am excited about this, as I have said, my lack of understanding in this area made reading my company’s financial statements quite difficult.  

Is there a set discount amount when reducing future dividends to PV?  Who decides this amount and how?

I am really loving learning about shares, dividends, their relationship to the cashflow, and what EBITDA means (it was a question in my KCQ’s for my company’s annual report).  I am learning!  In light of this new knowledge, my company’s financial statements are making far more sense, I am able to read and understand them better.  I am getting a better picture of their bottom line. 

Key Concepts and Questions

CHAPTER ONE

Starting with a John Lennon quote is always good.



I have worked in finance for over 10+ years and am such a number’s girl.  I know from my experience that I can tell what is going on in a team from the numbers at the end of the month.  I can even tell when there is strife or disruption within the team, spending will be down, sick leave provision gets reduced, all these elements tell a story.  I am not sure I agree that a firm’s accounts are not themselves the economic and business realities of the firm.

I certainly know accounting can be manipulated.  I have seen managers fudge the timing of income and expenses to make the accounts look better than it is.  I have also seen owners do similar to avoid making a profit at the end of the year to avoid taxes.  If this is so common, what faith can we have in the numbers?  Am I just lucky that my current workplace does not play this game and allows the accounts to be a true representation of the businesses standings?  

It is interesting to read that the majority of the board for Martin’s company, Ryman Healthcare, have accounting degrees.  This is something I noticed about my company’s board, they took all have tertiary educations in business or accounting.  About half of my company’s Executive Team are degree qualified too.  This solidifies for me that I am on the right track with my studies for the career trajectory that I want.

I must admit, I find this writing style very different.  Not at all like the usual prescribed textbooks.  I am not sure yet if I like it.  I do think the chapter needs a good beta as some paragraphs and sentences where doubled.  I am not sure why there is a whole page given to businesses in Yeppoon, followed by another of pictures.  I think the point could be more concisely made.

Wow, who knew there was so much history surrounding the inception of double sided entry?  However, I am very anxious to keep going, to get on with more relevant learning.  The question regarding whether accounting can or cannot be used to understand a business is still being asked, as I have shared I have my own views and I am keen to finding this answer.

Measure of Value.  This concept certainly does show that while accounting may not be the only way to view a business, it is definitely one necessary way.  Is that the key?  Do I need to be more rounded in how I view business?  How will this course help me to do that?  I think I am beginning to see.  Slowly.  I am quite stubborn in my opinions and I’m still reserving my judgement till I learn more….

Much of the basic accounting concepts I am very familiar with.  I work with them constantly in my role as Finance Administrator for a Not For Profit organisation.  I have studied them in past courses.  I am very much hoping that this course delves more into using these skills to better understand a business.  I think I may be quite challenged in my thinking by this course.

Top Three Blogs

Lauren Newton's Blog

Visually, Lauren's blog is clean, easy to read and easy on the eyes.  I like that she has used pictures and multimedia (who doesn't love Tom Cruise's Risky Business dancing scene?) to hold interest.  However, where Lauren's blog shines for me is in her writing.  Right from her introduction post I was engaged and looking forward to reading more, her style is personal and you almost feel your sitting having a cup of tea and chatting with her.  The content is informative yet still fun.  She did a great job turning what could have been a very boring company into something interesting.  Her last post on plastic and changing the way we look at it, helping each reader to find a way plastic relates to them (in my case online shopping and Magnum ice creams!), was inspired.

Adrian Zaknic's Blog

I found Adrian's blog really informative, it is clear right from the beginning that Adrian has a good understanding of his company and has done his research, it encouraged me to continue reading his blog and learn with him.  And he very clearly took me on the journey of his company with a very comprehensive overview of the company, their operations and their financial situation.  Adrian has also been very engaged with all his fellow students which endeared him to me.  I found Adrian's blog easy to view, well laid out which encourages reading.  I also liked the nod to his company's shipping via the rainy blog background.

Sheena Mackie's Blog

Sheena is a artist with past experience in writing and this is reflected on her blog immediately.  Visually it is engaging, the use of consistent colour gives it focus and allows you to concentrate on the content.  Her introduction post is welcoming, well written and very personable.  You get a good sense of who she is.  Her next two posts detailing her company are very well researched, she clearly knows her company, well written and engaging which makes learning with her easy. I am looking forward to reading more on her blog even though her company itself does not interest me.  I am invested in her blog because of Sheena as a person and the way this reflects in her content, even when talking figures, armour trucks and railway supplies!   

KEY CONCEPTS AND QUESTIONS

BRISCOE GROUP LIMITED

The Briscoe Group's current Annual Report can be viewed here.

KC:   The Group is fortunate to have Briscoes Homeware as its flagship retail chain.  This business as been trading in New Zealand for over 150 years and is a household name in homewares.  This brand recognition has helped the Group through some tough economic times in the past.

KC:   The appointment of Rodney Duke in the 80's saved the company from imminent closure.  His purchase of 100% of company shares in 1990 was the second significant turning point for the company.  Under his ownership the Group had increased growth with the establishment of two new chains.  RA Duke has made the Group what it is today.

KC:   The Group has experienced strong growth over the last three years with Net Profit After Tax increased by 55% (2014 $33,575,000   2013 $30,468,000   2012 $27,529,000   2011 $21,612,000). This is contributed to a focused effort by the Executive Team in the following areas: Inventory Management, Cost Control, People Development, Tech Improvements, Promotional Planning, Operational Structure and Expansion of Online Store.

Q:   Unsure what value/understanding is gained by reporting Earnings Before Interest and Tax (EBIT).  I have not see that before.  However, I have only working in small to medium businesses.

KC:  EBIT on Rebel Sports up 22% from last year.  Is this the result of the excellent marketing strategy I have already brought to attention on my blog?  (link)  Is this a concerted push as part of the focus on promotional planning?

Q:   So far the Group has successfully managed to increase the revenue made via their online stores without detriment to their in-store shopping.  Can they continue to find this balance in an increasingly online world?

Q:  The fiscal year in New Zealand traditionally runs from 1 April to 31 March.  Yet Briscoe Group Ltd report for the year February to January.  And each of the five year's comparative statements noted on the current annual report have ended on different dates in Jan (31 Jan 2010, 30 Jan 2011, 29 Jan 2012, 27 Jan 2013, 26 Jan 2014).  Why do they do this?  Does this lack of consistency question the comparability of their figures?  Is this common Big Business practice as I have never come across this working in small to medium businesses before.  Even the Chairman's Review highlights the early cut of for the 2014 year and that is means that $12 million of expenses paid shortly after cut off were not reported.

KC:   Gross Profit Margin was down to 38.5% this year compared to 38.9% last year.  This was contributed to the unseasonably late start to winter sales which was a challenging start to the year.

KC:  This year the group has reclassified the cost of distributing goods from the central warehouse from Store Expenses and Administration Costs (Expense items) to Cost of Goods Sold (COGS items).  This brings their reporting method in line with other New Zealand retailers making their reports more comparable.  For the annual report they also reclassified the 2013 year to ensure fair comparison of this year. While this affected their Gross Profit Margin, changing it from 39.74% before reclassification to 38.5% after, there was no change to Net Profit.

Q:   I really do not understand share options nor hedging and other elements involved in the shares of a limited company.  This has made it difficult to understand some elements of its financial statements such as the split reporting on the Statement of Changes in Equity.

KC:   Briscoe Group Limited offers and Incentive & Profit Share Scheme to key members of the store and support management.  Since the introduction of this scheme, profits have continued to grow and everyone has received a bonus payment.  The financial result suggests there is real merit to this scheme.

KC:   Briscoe Homewares opened a new store this year but Living and Giving closed three and the continued viability of Living and Giving is still being assessed this coming year.

KC:   At first I did not understand why the Group would report Store Area (m2).  After further reading, I understand that floor space and optimising its use is critical in a retail environment.

Q:   I do not understand the distinction between "Group" and "Parent" on the financial statements.  From continued reading I assume that the "Parent" is the entity for the head office and "Group" relates to the three retail operations.  This assumption is supported by the lack of sales revenue in the "Parent" statements.  However, I still find it awkward to read the two separately and wish they have included a third column to total the figures, especially as they report them as one figure in the Chairman and Managing Directors reports.  The notes to the financial statements confirm my assumption.

KC:   The Group pays close attention to its Liquidity Risk and ensures it remains low with sufficient levels of liquid assets.  Current assets at the end of 2014 were $158,070,000 compared to $144,724,000 at the end of 2013.  The Group has identified the increase of inventory items in the lead up to Christmas is a risk for that particular quarter.  As a contingency, the Group has an, as yet untouched, $500,000 overdraft facility.

KC:  Credit Risk is also low as retail sales are generally instantaneous receipt of cash or credit card payments meaning less than 1% of reported sales gives rise to trade receivables.

KC:  The Group shows improvement on aged receivables compared to last year.  Receivables past due are down from $36,000 in 2013 to $18,000 this year.  Receivables impaired are down from $12,000 in 2013 to $2,000 this year.  This would be helping their cashflow and liquidity.

KC:  The Group has increased Trade and other payables this year compared to last year, however as noted in the Chairman's Report, a considerable payment to trade debtors was made five days after the financial year cut off.

KC:  Cash and Cash Equivalent of $84,762,000 (up $7,221,000 from 2013) and Total Assets of $215,384,000 (up $23,553,000 from 2013) put the Group in a great position for future acquisition as discussed previously on my blog (link).

KC:  Inventory adjustments are similar this year ($3,300,000) compared to last year ($3,237,000) but finished goods have increased from $67,810,000 last year to $72,612,000 this year.  This indicated good stock management, an area noted in the Chairman's Report of particular focus.  Evidently, their efforts are paying off.

Q:   I am unsure how to read and understand the detail analysis of Taxation.

KC:   The Group has committed significant money to store fit outs and projects with spending of $5,066,000 this year compared to $247,000 last year.  This expense has not adversely affected the Group's profit, in fact as discussed before, the layout of retail stores and maximisation of space is critical to retail operations and investing in store fit outs and projects could have contributed to increased profits this year.

In conclusion, I believe the Briscoe Group Limited is trading extremely well.  Gross Profit Margin is steady, Earnings Before Interest and Tax (EBIT) and Net Profit After Tax (NPAT) are both continuing to increase yearly (especially over the last three years),  Equity and Total Assets have increased this year and the Group is placed well to look into new acquisitions this year.  I believe strong brand recognition, a good balance between online operations and bricks-and-mortar stores, sound understanding of their risk periods with good practices in place to mitigate these and a focused leadership from the Directors and Executive team place the Group in a strong position and we can expect a similarly good result at the end of this financial year.

COMMUNITY SPIRIT

I am impressed by the commitment of the Briscoe Group Limited to give back to the local community. 

The Briscoe Group pride themselves on being a responsible and socially aware corporate citizen and actively support a wide variety of local community based charities, sports clubs and other initiatives by donating product to support fundraising efforts.

As part of the recent 150 year celebrations and to recognise that every great organisation is dependent on its great people, they announced that Briscoe Group would be establishing an Education Foundation to provide scholarships to eligible selected Briscoe Group employees or their children. The purpose of the scholarships is to encourage tertiary level study predominantly in New Zealand among deserving employees of the Company or their children, in a field that is important or complementary to a core function of the Group’s business.

In addition to these community ventures, The Briscoe Group is a Key Partner of Cure Kids since 2004, was a foundation partner of the “Add a Dollar to Cure Kids” campaign and enters teams in the “Accor Hotels $10 Queenstown Challenge to Cure Kids” and the “Great Adventure Race to Cure Kids”.  Since the partnership began, Briscoe Group has raised $2.85 million, including by way of the annual Briscoe’s Golf Day, which has contributed $1.3 million over the last nine years.

Cure Kids find the cures for life-threatening illnesses that affect children.  They focus on raising funds so vital medical research can continue until their researches find the cures needed.  Put simply, they fund the cures, the researchers find the cures.  

Rebel Sport

The Briscoe Group Limited retail company, Rebel Sport, continues to increase first quarter sales.

TVNZ - Business News - Briscoes Lifts First Quarter Sales Fattens Margins

I believe brand recognition and a strong marketing campaign that focuses on their mantra "no one gets sports like us" are a major reason for the retail store's sales growth.  

This strong marketing campaign is epitomised in their latest television advertisement where Rebel Sport continues to tell its brand story via a new poetic spot that's narrated by the stirring voice of ex-All Black star Brad Thorn.

Past advertisements have highlight NZ Sprinter Abiola Beckley.  Over 100m he's completely airborne for 88 of them. Watch him fly!

THE FUTURE IS BRIGHT AND FULL OF POTENTIAL FOR THE BRISCOE GROUP LIMITED

With shares that have grown four times faster than the NZX 50 Index in the past five years, expected cash reserves at the end the financial year between $80 million and $90 million and no debt, The Briscoe Group is ready to fund an acquisition of up to $200 million in existing or new businesses.

New Zealand Herald - Briscoe 'very eager' on acquisitions, says Duke

BRISCOE GROUP LIMITED

My company is Briscoe Group Limited, a holding company that operates approximately 80 stores throughout New Zealand within two retail sectors, homeware and sporting goods, under the three brand names Briscoes Homeware, Living & Giving and Rebel Sport, which together generated sales revenue in the Group’s latest financial year in excess of $452 million.

Briscoe Group Limited is currently spearheaded  by Group Managing Director, Deputy Chairman and majority shareholder, Rodney Adrian Duke, an Australian retail entrepreneur Rod Duke who took over the running of the business in 1988 with a mandate of returning the company to profitability and preparing it for sale.  However, Duke saw the potential of the business and in January 1990, Rod reached agreement for the RA Duke Trust to purchase 100% of the shares of Briscoes.  Since then, the group has expanded to include the new homeware chain Living and Giving and then In 1996 established, and in subsequent years expanded, the Rebel Sport chain of sporting goods stores in New Zealand.

Briscoes Homeware is the flagship operation within the Briscoe Group, it began life as a hardware retailer supplying prospectors during the gold rush with shovels, picks, tents and lanterns in the early 1860s.  Over the 150 years since the business began trading in Dunedin, Briscoes has become an iconic New Zealand brand for quality branded homeware. With 41 stores nationwide and an online store, Briscoes Homeware supplies quality and competitively priced homeware to the New Zealand market.

To celebrate 150 years trading, Briscoes have released a book by reknown New Zealand historian Ian Hunter documenting the historical journey of the iconic retail store.

Living and Giving is the newest homeware retailer within the Briscoe Group offering customers the latest in style, whether it is for themselves, for their homes or for others as gifts. Products are sourced from around the world as well as from New Zealand-based suppliers to provide a wonderful mix for casual yet sophisticated living that is both fashionable and affordable.  Living & Giving has seven stores in Auckland, Wellington, Lower Hutt, Nelson and Christchurch and an online store.

Rebel Sport opened its first store in Panmure, Auckland in 1996 and has grown to become the major sporting goods retailer in New Zealand. The concept is to provide sports superstores where shoppers can choose from a huge range of the biggest and best brands in the world.  Rebel Sport now has 32 stores in selected cities and an online store.

In total, the Briscoe Group Limited employs approximately 1800 people in their head office in Auckland and throughout their retail stores.

The Briscoe Group Limited is listed on the New Zealand Stock Exchange (NZSX) under company code “BGR”.  

New Zealand Stock Exchange

The 215 million shares that the company has on issue are owned by majority shareholder the RA Duke Trust, an associated party of Group Managing Director and Deputy Chairman Rod Duke, and approximately 3,300 other shareholders. Through 2013 the shares have traded at prices of $2.30 to $2.50 per share, equating to a market capitalisation for the company of $500 million to $540 million, respectively.

Definitely one of these days today.