Lending Submission - Little World Beverages - Essay Example

?Little World Beverages Limited – Lending By Lecturer 0 Background Borrower: Little World Beverages Address: LITTLEWORLD BEVERAGES HEAD OFFICE 40 Mews Road, Fremantle, WA - 6160 Principal registered office: 1/7 Jones Street, O’Connor WA Australia 6163 Web-site and Phone: http://www.littleworldbeverages.com/ (08) 9338 8500 Email: jason@littlecreatures.com.au Board of Directors: Ordinary shares Options over Ordinary shares Ian Cochrane Chairman 147,500 ---- Howard Cearns 4,303,800 3,000,000 Adrain Fini 10,394,621 – David Martin 4,550,000 – Nic Trimboli 4,860,000 3,000,000 Jamie Tomlinson Company Secretary Kylie Webster CEO Ross Sudano Products Little Creatures Pipsqueak Cider Aspall Cyder (Australian Distribution) White Rabbit Dark Ale Subsidiaries Little Creatures Brewing Pty Ltd Little Green Steps Pty Ltd Fremantle Harbour Properties Pty Ltd Major Shareholders: Twenty largest holders Name Number of Ordinary Shares Percentage of Issued Capital 1 Anglo-Gaelic Investments Pty Ltd 20,000,000 33.85% 2 Fini Group Pty Ltd 5,000,000 8.46% 3 Touchdown Holdings Pty Ltd 4,400,000 7.45% 4 Cearns, Howard Davies 3,937,500 6.66% 5 Trimboli, Nicola 2,500,000 4.23% 6 Eureka Nominees Pty Ltd 2,300,000 3.89% 7 Yalaba Pty Ltd 2,250,000 3.81% 8 Permanent 3 Nominees Pty Ltd 2,118,132 3.59% 9 Riverbend Investments Pty Ltd 1,600,000 2.71% 10 UBS Wealth Management Australia Nominees 1,112,000 1.88% 11 Perth Investment Corp Limited 850,000 1.44% 12 12 Cogent Nominees Pty Ltd 817,834 1.38% 13 Spar Nominees Pty Ltd 767,889 1.30% 14 Passchendaele Ridge Pty Ltd 652,515 1.10% 15 Stewart, Brent Michael 350,000 0.59% 16 Back Veranda Pty Ltd 312,500 0.53% 17 Swanshore Enterprises Pty Ltd 311,000 0.53% 18 AMP Life Limited 275,494 0.47% 19 Minalti Pty Ltd 243,000 0.41% 20 Health Investment Nominees Pty Ltd 220,525 0.37% Total 50,018,389 84.65% Source: http://www.reuters.com/finance/stocks/companyOfficers? symbol=LWB.AX (accessed on 24.05.2011). Source: http://www.reuters.com/finance/stocks/companyOfficers? symbol=LWB.AX (accessed on 24.05.2011). (All the above details as on 30th June 2010) Financing proposed: This report is to find out if there is any possibility to provide $25 million by “Excel Bank” to “Little World Beverages.” Facility Type Overdraft and purchase of new land, buildings and brewing equipments Limit $25m Term Five Years Purpose The loan is being sought by the company for its ongoing expansion. The break up of the loan sought by the company is as follows: $16 million to replace their existing facilities $1 million overdraft facility $5 million to purchase new land and buildings $3 million to purchase new brewing equipment 2.0 Overview of Little World Beverages 2.1 Business Description Little World Beverages Limited (LWB) is a company which is based in Australia. The major functions of the Company are controlling brewing and packaging installations, selling draught and packaged beer and cider both at the national and international levels, and carrying on hospitality functions in Fremantle, Healesville and Melbourne. The portfolio of the Company is White Rabbit Brewery and White Rabbit ales. White Rabbit ales are taken from the malt components and their unique yeast energizing by the open fermentation procedure. LWB has its business operations in the United Kingdom, Singapore and New Zealand. The subsidiaries of the Company as of June 30, 2010, include Little Creatures Brewing Pty Ltd, Little Green Steps Pty Ltd and Fremantle Harbour Properties Pty Ltd (http://markets.ft.com/tearsheets/business Profile.asp?s= LWB:ASX, accessed on 24.05.2011). 2.2 Recent Company History Little World Beverages, the listed beer makers at the back of the famous Little Creatures beers, improved profit by 35.4%. The company had made significant capital investments in breweries and hospitality so that a strong foundation can be created to develop the special beer brand. One of the fundamental capital expenditure projects settled through out the period was the building of a new brewery at the Fremantle home base, south of Perth http://www.Theaustralian .com.au/business/news/cheer-for-boutique-brewers-beer/story-e6frg90f-1111118964682 accessed on 24.05.2011). EBITRD increased by 19.8% while revenue increased by 27.2%. The company said that “The concrete financial returns was promoted by new income flows from hospitality ventures which included the Little Creatures Dining Hall in Melbourne and upgrades to trading areas in Fremantle, which had contributed strongly." The growth of the consumer interest in ciders also assisted the company’s growth http://www. theaustralian.com.au/business/news/cheer-for-boutique-brewers-beer/story-e6frg90f-1111118964682 accessed on 24.05.2011). 2.3 Company History The company was instituted in November 2000 by a number of ex-staff and shareowners of the Maitilda Bay Brewing Company after that taken over by Carlton & United Beverages (CUB). It had initial subscribed capital of $1.The company was listed on the Australian Stock Exchange on 20 October 2005. The present price of shares of the company is $ 3.750 (http://www.investsmart. com.au/company_profile/summary/default.asp?SecurityID=LWB& ExchangeID=ASX accessed on 24.05.2011). In July 2008, the Little Creatures Dining Hall, which presents the Group's bear and cider productions, unfolded in Fitzroy, Melbourne. In 2009, LWB took a 20% stakes in Stone and Wood Brewing Company, which provided LWB with an agreement to allocate certain products from the guile beer maker (http://www.investsmart.com.au/companyprofile/summary/default.asp? SecurityID =LWB&ExchangeID=ASX accessed on 24.05.2011). 2.4 Controlled entities Name of entity country of incorporation class of shares Equity holding 2010 % Holding company Little World Beverages Australia 100 Little Creatures Brewing Pty Ltd Australia Ordinary 100 Little Green Steps Pty Ltd Australia Ordinary 100 Fremantle Harbour Properties Pty Ltd Australia Ordinary 100 Associates and Joint ventures There were no associates or joint venture entities associated with the consolidated group for the period. 3.0 Industry Analysis 3.1 Key success factors http://www.littleworldbeverages.com/Download-document /55-Annual-Report-30-June-2010.html (accessed on 24th May, 2011). The different development projects which were flourishingly completed in 2009 are now turning in better returns to the interior business with both the new and already on hand products benefiting and preserving extensive consumer reception. Successful integration of new operations with the existing ones took place in 2010. An exceptional nucleus product was introduced to the market in White Rabbit. The existing products were also well accepted by the customers especially when competition was very severe. The Fremantle trading operations have done well with a tough spotlight on stability and value driving the everyday actions. During the year, LWB introduced the Single Batch collection with the first two batches of India Pale Ale (IPA) and Brown Ale turning out to be very trendy. The White Rabbit brewery is dealing well with augmented requirement for White Rabbit product on a national scale. The Dining Hall venue in Fitzroy, Victoria has preserved to afford a handy touch point for the products and customers in that market. This served as a foundation for the Victorian based administration team. 3.2 Key Sensitivities (http://www.littleworldbeverages.com/Download-document/55-Annual-Report-30-June-2010.html, accessed on 24th May, 2011). LWB has had some losers in the implementation of its growth scheme. The most noticeable has been associated to the allocation of Aspall cider. Initially LWB designed to allocate Aspall cider in Australia, apparently to afford variegation to the beer market. After this proclamation no additional information has been issued in either ASX proclamations or company compositions. Thus we can assume that the allocation deal was not as compulsory as the market supposed. LWB actually needs ample time to carry out a variety of strategies. The time taken by the company to complete projects provided the rivals with time and an advantage to foresee the moves of LBW. This may be due to issues in managing project deadlines. It could also reflect on the whole company’s capability to handle quick changes. 4.0 Financial Analysis 4.1 Capital Structure 30/6/01 ($ 000s). Total Debt 19,925 Interest: $69 Long Term Debt 19,541 (58% of capital) Shareholders equity 14,071 (42% of capital) Little World Beverages accounted NPAT up 51.1% to $6.8m for the year ended 30 June 2010. Returns from common actions were $56.4m, up 18.2% from last year. Debased EPS was 10 cents equated to 6.66 cents last year. Net operating cash flow was $7.92m equated to $8.14m last year. The final dividend announced was 5.0 cents completely postmarked, bringing the full year dividend to 9.5 cents equated with 4.8 cents last year. The maker of the Little Creatures brand of beer and Pipsqueak cider referred the developing fame of its Fremantle brewery and Fitzroy dining hall for the convinced result. The brewer preserved its full-year dividend at 4.8?, with the 2.5? closing installments to be paid on September 30. But it slackened off an increment in disburses next year to mirror higher cash flows as a consequence of its major capital investment in 2009(http://www.littleworldbeverages.com/, accessed on 24th May, 2011) . Conversely, if the loaner just reckons on the first way and second way out, the bank may feel confident to lend $25 million to “Little World Beverages” (Appendix1&3). The first way out shows that the company can pay the borrowed money back each year. The second way out indicates that SLM is more than the company’s borrowing amount. So it is not risky to lend such an amount to the company by the bank (http://www.littleworldbeverages.com/, accessed on 24th May, 2011). 5.0 Security According to Safe Lending Margin (SLM), it is not risky to lend $ 25 million to “Little World Beverages”. 6.0 Key Strengths& Weakness relating to the proposal 6.1 The key strengths When analysing about the strengths of the company it can be said that one of its strengths is that LWB develops award winning products with the help of a management team with major experience in the brewing industry and due to this the company has been able to develop at a significant rate. The directors have ventured on a very challenging scheme, which, if productive will place the company for additional market access. The White Rabbit brewery in Healesville Victoria is at present completely functional and is performing a significant part in presenting the unambiguously created dark ale to the consumers on the east coast. White Rabbit Ale is being gradually issued by key national accounts and before time comment from customers is very optimistic. As formerly forecast the achievement of the Group's brewing competence increase point and cutback in capital expenditure ensues in a substantial heave in estimating uncommitted cash flow, altering the business to step-up its dividend rate 6.2 Weakness: One of the major weaknesses of LWB is that it has very limited products to offer. Mitigant: LWB will have to look to improving its quality so that more of its products are sold out to overcome the less number of products that the company has on hand as of now. The next weakness is that the business is concentrated only in Australia except for a few other countries. Mitigant: The Company should start having branches in different countries so that it can earn more revenue as well. The stock is not liquid as the company’s management own an extensive holding. Thus latent investors should consider these issues. Mitigant: Management should avoid buying more and more of the company’s stocks. 7.0 Recommendation To check the capability of reimbursement, as a lender the Excel Bank has to ascertain as to whether the borrower is capable of meeting the necessities of the first way and second way out. But in reality, the “Little World Beverages” is in a position to meet both requirements. Thus the bank will not be under any risk when it lends to the company an amount of $25 million. But still it is in the hands of the bank to keep a watch on the growth of the company in the future as well so that the money lent is safe. 8.0 Appendix 1- Security Position The safe lending margin (SLM) for “Little World Beverages Limited” can be calculated as: Assets Amounts ($000) Rate Safe Lending Margin (SLM) Cash and cash equivalents1 Trade and other receivables Inventory( stock) Other financial assets Plant and equipment Intangible assets $ 670 $ 4,445 $ 2,483 -- $ 44,601 $1,165 0% 50% 40% -- 50% 0% $0 $2222.50 $993.20 -- $22,300.50 $0 TOTAL $53,364 $25,516.2 The Safe Lending Margin (SLM) is approximately $25,516.20 million which is more than borrowed money $ 25 million. It means that “Excel Bank” can get its money which it lends to LWB fully. Even if the company fails in the future the money lend by the bank is fully secured. 9.0 Appendix 2-Analysis of Historical Financials Little World Beverages Limited ABN 25 081 128 225 Statement of Comprehensive Income for the year ended 30 June 2010 Consolidated Note 2010 2009 In AUD $’000 $’000 Revenue 7 56,433 47,748 Raw materials and consumables (10,511) (9,133) Selling and distribution costs (3,932) (3,205) Depreciation & amortization expenses 9 (2,340) (2,019) Employee expenses (13,547) (12,369) Bad & doubtful debts (13) 29 Excise tax (8,440) (6,678) Occupancy costs (2,397) (2,141) Consumables, repairs & replacements (1,217) (990) Loss on sale of assets (51) (33) Other expenses (3,477) (3,211) Results from operating activities 10,508 7,998 Finance income 39 39 Finance expenses (1,193) (1,122) Net finance income 8 (1,154) (1,083) Profit before income tax 9,354 6,915 Income tax expense 10 (2,563) (2,382) Profit for the period 6,791 4,533 Attributable to: Equity holders of the Company 6,791 4,533 Other comprehensive income – – Total comprehensive income for the period – – Total comprehensive income for the period attributable to equity holders of the Group. 6,791 4,533 Earnings per share Basic earnings per share (cents) 36 11.50 7.67 Diluted earnings per share (cents) 36 10.00 6.66 Source:http://www.littleworldbeverages.com/Download-document/55-Annual-Report-30-June-2010.html (accessed on 24th May 2011) Little World Beverages Limited ABN 25 081 128 225 Balance Sheet as at 30 June 2010 Note 2009 2010 in AUD $’000 $’000 ASSETS Cash and cash equivalents 11 670 1,277 Trade and other receivables 12 4,445 3,687 Inventories 13 2,483 1,974 Other 14 510 160 Total current assets 8,108 7,098 Other financial assets 15 385 310 Property, plant and equipment 16 44,601 45,516 Intangible assets 17 1,165 1,165 Deferred tax assets 18 597 191 Total non-current assets 46,748 47,182 Total Assets 54,856 54,280 LIABILITIES Trade and other payables 19 3,610 4,111 Provisions 20 507 398 Current tax payable 21 1,280 902 Total current liabilities 5,397 5,411 Payables 22 – 118 Loans and borrowings 23 16,000 18,500 Total non-current liabilities 16,000 18,618 Total liabilities 21,397 24,029 Net assets 33,459 30,251 EQUITY Share Capital 24 22,093 22,024 Reserves 25(a) 2,422 1,933 Retained earnings 25(b) 8,944 6,294 Total equity 33,459 30,251 Source:http://www.littleworldbeverages.com/Download-document/55-Annual-Report-30-June-2010.html (accessed on 24th May 2011) 9.1 Ratio Analysis: Financial Strength Short term solvency June 30 2010 June 30 2009 Quick Ratio 1.57 2. 0 Current Ratio 1.85 1.03 Debtor T/O 30.65 148.80 Stock T/O 57.97 194.94 Long Term Solvency Fixed / Sh funds 1.779 10.44 Sh funds/T Assets 13.68 23.55 Sh funds/Outside 0.61 0.96 Debt Cover 8.26 --- Interest Cover Ratio ---- --- @ 10% Business Performance Gross Margin 65.84 50.62 Net margin 12.49 11.67 OP Exp/Sales 36.73 55.80 9.2. Short Term Liquidity Both the Quick and Current ratios of the company are more or less standard. This is an advantageous signal since the company is able to uphold its improved positions from earlier years. There is some cash in hand with the company and with stringent rules for debtors turn over ratio the company is in a position to borrow more funds. The stock turn over ration of the company has comparatively decreased and this shows that the company has been able to sell more than 50% of its stock. This also shows that not much of cash is locked in stock of the company. Even though short term liquidity is a better indicator but still long term debt repayment cannot be inferred from this. 9.3. Long Term Solvency The entire long term solvency ratios are not very strong. The company has profits from which it can set apart some portion for the payment of the loan. Shareholders need not get perturbed if the company uses its profits for repayment of the loan. Business Performance The company has enough funds and it can repay its loan from the bank. Thus the Excel bank need not worry about its lending to the company as its loan is fully secured. Appendix 3 Non–current assets – property, plant & equipment Consolidated Land & Leasehold Plant Total Buildings Improvements & Equipment $’000 $’000 $’000 $’000 Year ended 30 June 2010: Opening net book amount 9,303 12,451 23,762 45,516 Additions – 309 1,192 1,501 Disposals / adjustments – 3 (79) (76) Depreciation charge (7) (446) (1,887) (2,340) Closing net book amount 9,296 12,317 22,988 44,601 At 30 June 2010: Cost 9,312 13,247 28,962 51,521 Accumulated depreciation (16) (930) (5,974) (6,920) Net book amount 9,296 12,317 22,988 44,601 11.0 References 1. http://www.reuters.com/finance/stocks/companyOfficers? symbol=LWB. AX (accessed on 24.05.2011). 2. http://www.littleworldbeverages.com/ (accessed on 24.05.2011). 3. http://www.investsmart.com.au/company_profile/summary/default.asp?SecurityID=LWB&ExchangeID=ASX (accessed on 24.05.2011). 4. http://www.theaustralian.com.au/business/news/cheer-for-boutique-brewers-beer/story e6frg90f-1111118964682 (accessed on 24.05.2011). 5. http://www.littleworldbeverages.com/Download-document/55-Annual-Report-30-June-2010.html (accessed on 24th May 2011) 6. http://www.bourseinvestor.com.au/bi4/pdfnews/default.asp?d=01039913&f=20100223(accessed on 24th May 2011) 7. http://www.oppapers.com/subjects/organizational-strategy-analysis-page1.html(accessed on 24th May 2011) 8. http://www.companiesandmarkets.com/table-of-contents-for-little-world-beverages-limited-(lwb)-financial-and-strategic-swot-analysis-review-460371.aspx(accessed on 24th May 2011) Read More