retail food group - analysis report - group 5
TRANSCRIPT
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Group 5 Assignment
1. EXECUTIVE SUMMARY This report provides a detailed insight into the evaluation of Retail Food
Group (RFG) based on the macroeconomic factors, food retailing
industry and its financial health.
The findings have shown that the company has been able to maintain a
constant profit margin despite a poor indicator of macroeconomic
factors due to the fragile recovery in the Europe and the current
shutdown of the US government. Furthermore, regardless of the
saturation of the domestic food retailing sector in Australia, RFG
succeeded in capturing more market shares by its strategies from its
bargaining power to its strong client base. Recently, the acquisitions of
Crust Gourmet Pizza Bar and The Coffee Guy Group have demonstrated
the group’s aggressive approach to become one of the key players in
the food and restaurant market.
The group has enjoyed good financial health since 2011 after strategic
acquisition of Esquire Coffee. In addition, the debt fell from 40 percent
to 30 percent approximately indicating a growth in confidence of
shareholders after the successful acquisition.
FY2013 profit is expected to be in line with recent trend of growth,
while FY2014 is forecasted to be subdued as compared to market and
recent trend. It is the transition year with two major projects including
Project Evo and Project QSR400, aiming to restructure business model
and increase market share of pizza chain.
In summary, several benefits of potential investments mentioned
notwithstanding, it is highly recommended that the stock should be on
hold due to the significant reliance on the success of two major
projects in FY2014 with the target price at $4.38
RETAIL FOOD GROUP LTD -VALUATION REPORT-
AFIN838 – BUSINESS VALUATION - GROUP ASSIGNMENT
24 September 2013
Retail Food Group Ltd ASX:RFG
OVERPRICED - HOLD
Price Target: 4.38
Downsize Potential: (1.6%)
Price Performance (AUD) at 23-Sep-2013 Current share price $4.45
52-week high price $4.87
52-week low price $2.83
Shares outstanding 130,3m
Market Capitalisation $579.8m
Total debt (+) $99.9m
Preference Share (+) $0
Cash & cash equivalents (-) $13.2m
Short term investment (-) $0
Enterprise Value $666.5m
Market Beta 0.83 Source: Yahoo Finance, 1H2013 Company Reports,
Damodaran Data (2013)
Trading Multiples at 23-Sep-2013
EV/EBITDA 13.6x
P/E 20.2x
Profitability CY2012
ROA (%) 8.1%
ROE (%) 12.2%
Source: Company Reports
ANALYSTS:
- HUU QUANG NGUYEN – ID: 42272130
- TRAN NHAT HUY NGUYEN – ID: 43117953
- HUONG GIANG NGUYEN – ID: 43175252
- DO DAT DONG – ID: 43111270
- TRI TAM CAO – ID: 42055253
Source: Yahoo Finance
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Group 5 Assignment
Table of Contents 1. EXECUTIVE SUMMARY ....................................................................................................... 1
2. ECONOMIC ANALYSIS ........................................................................................................ 3
2.1 Global Economy..................................................................................................................... 3
2.2 Gross Domestic Product ........................................................................................................ 3
2.3 Inflation and interest rate ..................................................................................................... 3
3. INDUSTRY ANALYSIS .......................................................................................................... 4
3.1 Porter’s five forces analysis ................................................................................................... 4
3.2 Sensitivity to business cycle analysis..................................................................................... 6
4. BUSINESS ANALYSIS ........................................................................................................... 6
4.1 Company Profile .................................................................................................................... 6
4.2 Company Strategy ................................................................................................................. 8
4.3 SWOT Analysis ....................................................................................................................... 9
4.4. Sustainability ...................................................................................................................... 11
5. FINANCIAL STATEMENT ANALYSIS .................................................................................... 11
5.1 Historical revenue and profit .............................................................................................. 11
5.2 Profitability .......................................................................................................................... 12
5.3 Liquidity and solvency ......................................................................................................... 12
5.4 Investment management .................................................................................................... 13
5.5 Sustainable growth rate ...................................................................................................... 14
5.6 Investment – related ratios ................................................................................................. 14
6. VALUATION ..................................................................................................................... 15
6.1 Valuation Methodology ...................................................................................................... 15
6.2 Weighted Average Cost of Capital (WACC) ......................................................................... 16
6.3 Valuation ............................................................................................................................. 18
6.4 Recommendation ................................................................................................................ 23
7. REFERENCE LIST.................................................................................................................23
8. APPENDIX…………………………………………………………………………………………………………………….….25
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2. ECONOMIC ANALYSIS
2.1 Global Economy
The world’s economy has witnessed a slow growth driven to a great extent by the Global Financial Crisis (GFC) in 2007.
Firstly, the Euro economy was evidenced to improve, albeit slowly, in this June. Nonetheless, the euro area is expected to grow at below 1 per cent until the end of next year. Correspondingly, despite a decline of unemployment rate of 7.4 per cent last month, the US economy is struggling with its slumping nominal GDP of 1.4 per cent at semi-annualised rate. Nonetheless, the shutdown of the US government has recently had negatively profound impacts on the overall recovery of this advanced economy.
Furthermore, China’s growth appears to be stable at 7 per cent. In addition, the Fed’s likelihood to taper its bond-buying programme might wreak havoc both on emerging market economies such as India or Indonesia which might lead to another Asian Financial Crisis.
2.2 Gross Domestic Product The Australian GDP has slowed down to 2.5 per cent and is expected to have further decrease of 25 basis points at the end of this year. A major factor contributing to a slumping GDP is because the mining sector has reached its peak in June 2013. The market capitalisation has declined 31 per cent approximately from $75.3 billion in June 2011 to $51.8 billion in June 2013. Also, costs including impairment charges have risen dramatically to $1 billion resulting a net profit of $1.6 billion compared to $2.8 in 2011. Thus, mining sector appears to be less attractive to international investors, which in turn leads to a decrease of foreign inflow causing the Aussie dollar to lose its strong position.
2.3 Inflation and interest rate
The recent outlook on employment rate and wages growth tends to push down the inflation. Nonetheless, the depreciation in the exchange rate is likely to have
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an upward pressure on the inflation. These two effects are expected to offset one another. Therefore, the inflation at the end of this year is forecast to remain moderate. Also, the introduction of carbon tax last year will also have a direct impact on the inflation.
3. INDUSTRY ANALYSIS This section focuses on the analysis of the industry in which Retail Food Group is
operating (food retailing industry). This includes two sub analyses which are “Five Forces” analysis and sensitivity to business cycle analysis. Result of these analyses will be the foundation for the assessment of profit potential of RFG.
3.1 Porter’s five forces analysis
a. Rivalry among existing competitors: high
The sluggish growth rate of the industry: The fact that food and drink industry has reached the saturation stage along with less private consumption slows down the growth rate of this industry. According to a research conducted by Business Monitor International (2013), private consumption in Australia is expected to decrease from 3% in 2012 to only 1.2% in 2013 which would leave the estimated food and drink sales stagnant in medium term. In such subdued industry, competition will be intense when the existing players struggle fiercely to take share from others.
Concentration is low. Patisserie, pizza bar and coffee house chains are three main sectors in which RFG’s brands are operating. Among three, patisserie with the presence of large number of shops from unbranded to branded names in Australia’s market is viewed as the most intense segment. Meanwhile although the market is more concentrated, the competition in two other segments is also likely aggressive with the presence of globally known brands such as Gloria’s Jeans or Starbuck (for coffee house chains) and Pizza Hut, Hugos Bar Pizza (for pizza bar).
Degree of differentiation is low to medium. This is because most of products in food and drink category generally are viewed as highly substitutable products. Despite the fact that
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pizza bars and coffee shops always struggle to make themselves differentiated from other players, basically customers are found easily change their choice of food and drink to other shops. Costa Coffee, which is main competitor of Starbuck, can be considered as an example. By acquiring Coffee Nation which is an operator of more than 1000 self-service coffee machines, the firm differentiated itself based on speed so that consumers can quickly grab a cup of coffee (Josh 2011). However, this differentiated feature is hard to be viewed as a long-term competitive feature so that the firm may rely on for maintaining their sales.
b. Threat of new entrants: medium to high
First move advantage is insignificant. Although the presence of widely-known brands makes it difficult for new comers to grab the share right at the initial penetration, it’s also challenging for existing players to set up certain standards for their products or services due to the characteristic of low differentiation of the products in this industry.
Legal barrier is inconsiderable. All businesses wish to operate in this industry must comply fully and strictly with all standards and regulations concerning food hygiene. It is, however, not a challenging barrier for proper and genuine businesses.
Capital requirements are medium. In this industry, largest portion in capital expenditure is for location and construction. A good location in shopping centre or high street along with impressive shop’s decoration will be attributable substantially to initial investment.
Relationship between customers and business is high. Brand name is one of the most considerable barriers for new entrants. John Henshall and Greg Smith (2009) in their research about “Creating brand value in food industry” stated that if consumers change their choice of food, such change due to taste which is a “habit and is determined by culture” accounts for a very small proportion and “brand value which is created through marketing activities will play a role in encouraging customers switching from one food category to another”.
c. Threat of substitute : high
Switching cost is low. It’s due to low level of differentiation of the products.
Relative price / performance of substitute products are low. It is noted that food and drink are classified into category that satisfies human’s basic needs and wants, such as need for energy, health and satisfaction (taste) (John, Greg 2009). There are, therefore substitute products which are cheaper but still satisfy these basic needs.
d. Bargaining power of buyers: medium to high
Price sensitivity is medium to high. Due to the fact that food and drink are product categories satisfying human’s basic needs as well as the availability of a wide variety of substitutes, buyers are viewed as highly price sensitive ones. However, it’s true that pizza and coffee are seen as up-market products in food and drink category and therefore, its price sensitivity level is quite lower than other ordinary substitutes.
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Bargaining position is strong. It’s clear that in food industry in general, buyers are in strong bargaining position thanks to large number of consumers and wide variety of substitutes.
e. Bargaining power of suppliers: low to medium
Concentration is low. According to the statistics released by Department of Industry, Innovation Science, Research and Tertiary Education (2012), food beverage and tobacco is the largest subsector contributing to the value of the manufacturing sector. This fact indicates that behind this industry is a wide network of suppliers which could be grocery stores, butchers, constructors, transporters, machinery suppliers.
Differentiation is low to medium. In order to create differentiation, coffee house chains or pizza markers may require differentiated ingredients from their suppliers. However, such differentiation is insignificant due to not too high level of differentiation for the outputs.
To sum up, on the basis of five forces analysis competition in food and drink industry in medium term is expected to be fierce. Moreover, the character of an industry with highly substitutable products and also already reaching saturation stage will make the competition become tougher. Hence, in medium term, profitability for players in this industry is expected to be lower. Also, the tendency of cutting down private consumption due to recent difficult economic condition drives the businesses to other competitive moves other than prices to maintain their market share in the next few years.
3.2 Sensitivity to business cycle analysis Fundamentally, food retailing is classified as defensive industry thereby sales is less sensitive to business cycle. However, it is noted that main market segment that RFG is heading is the segment of highly differentiated products at which customers are willing to pay premium to enjoy such differentiation. In addition, the substitution of the products in the industry is considerably high so that customers are beneficial with wide variety of choice at wide range of prices. This also means that when financial condition of the customers varies, it is likelihood that they vary their choice from RFG’s products to others in lower-price segments. Hence, it is foregone conclusion that in such highly defensive industry, RFG tends to be more vulnerable to business cycle than other peers.
4. BUSINESS ANALYSIS
4.1 Company Profile
4.1.1 Business description
Retail Food Group operates as a franchisor for most of its food brands and also manages its own outlets. In addition, the firm supplies roasted-coffee and bakery products to both franchisees and company-owned restaurants.
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Locations of Stores
Australia
New Zealand
Other
The Group main operations are in Australia and New Zealand. In addition, they also expand their presence to China, Papua New Guinea, Kingdom of Saudi Arabia, Indonesia and Singapore.
a/ Franchising
There are 8 brands comprised 5 franchise systems under Retail Food’s management, which open 1,391 outlets in total. Revenue is generated from royalties based on
franchisees’ turnover and license fees.
Donut King: Donut King provides catering services of yeast and cake donuts, breakfast, ice-cream, coffee and healthy beverages. The majority of 351 Donut King Restaurants are located in Australia; additionally, there are 14 stores open in New Zealand, Papua New Guinea, China and Saudi Arabia.
Michel’s Patisserie: Michel’s offers premium-quality coffee and cakes tailored to customer order. There are 325 stores, with 322 outlets located in Australia.
Brumby’s Bakery: Brumby’s customers are served additive-free breads and pie freshly made in-store. 295 out of 310 total stores are located in Australia, and 14 outlets in New Zealand.
Coffee Maximisation Unit: The franchise arm of this division consists of bb’s café, The Coffee Guy and Esquires Coffee House. Both bb’s café and Esquires aim at providing a relaxing atmosphere for customers to enjoy high-quality coffee and complement food and beverages at reasonable price. There are 97 stores in total, 60 of which are located in New Zealand and the rest are in Australia. The Coffee Guy is a special business specialises in low-cost coffee served from drive-thru, self-supporting capsule and kiosk. All 56 outlets of The Coffee Guy operate in New Zealand.
QSR Division: This division consists of Crust Gourmet and Pizza Capers. Both brands place the emphasis on high-quality pizza and flexible buying options for customers. Most of the 128 Crust restaurants and 123 Pizza Capers outlets are in Australia.
b/ Wholesaling & Retailing:
Retail Food wholesales roasted coffee to its franchisees and managed stores. The retail division comprises voluntary and involuntary managed outlets. Involuntary managed restaurants will be transferred to franchisees when they sign up.
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4.1.2 Key Executives
Retail Food business is executed by a strong management team with proven experience in managing franchise systems.
Name Position Qualifications
Tony Alford Chief Executive Officer CPA, ICA
Andre Nell Chief Operating Officer ICA
Peter McGettigan Chief Financial Officer ICA
Mark Connors Chief Legal Officer QLS, CSA
Gary Alford Director of Franchise
Tracey Caterall Director – Marketing & Innovation Mbus
Julie Bromley Director – Human Resources BCom
4.2 Company Strategy
4.2.1 Competitive strategy
RFG’s competitive advantage lies in the excellent quality of its products, which was prepared by well-trained chefs, bakers and baristas. Furthermore, due to the nature of franchise business, it is also possible for the Company to exploit economies of scale. Marketing, promotion, product research and IT activities can be conducted at corporate level and not necessarily increase with number of stores. As premium quality effectively shields RFG from price competition, relatively stable level of operating expenses allows the Group to gain higher operating margin than its peers.
4.2.2 Business strategy
The Group is proceeding to divest non-core business by the transition of wholesale bakery supply to Michel’s Patisserie franchisees to traditional royalty-based system. While this reduced significant amount of revenue generated from wholesale (over $20 million per annum), operating costs declined at higher rate and led to higher NPAT margin. There is also a strong emphasis on coffee brands image, through the acquisition of The Coffee Guy in late 2012, the expansion of coffee roasting facility and the new partnership with Channel 7’s breakfast show Sunrise to be the onset café from February 2013. RFG also focuses on its gourmet pizza business segment, which has become market leader in the sub-sector following the acquisition of Crust Gourmet Pizza in October 2012. Moreover, RFG planned to shift focus from low margin brand Donut King to higher margin products like pizza and coffee. They also grouped similar brands into consolidated units as Coffee Maximisation Unit and Quick Services Restaurants (QSR) Unit for optimal management strategy, avoiding cannibalism and efficient resources allocation. Specifically for the QSR Unit, Retail Food Group is executing a plan to open 400 outlets by 2015. The number of stores belong to this unit will reach 340 in 2014, of which 100 locations are under consideration. Approximately $18 million of investment is reserved for this project to
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spend on 4 main initiatives: reduction in initial franchisee fee for easier franchise establishments, incentives for multi-site owners, initial investment in new outlets and potential acquisitions. As for the coffee unit, there has been a substantial expansion of capacity. RFG bought a new coffee roasting facility in Yalata and expects to finish the fit-out by mid-2014. In addition, the Group explicitly expressed intention to acquire further brands to expand the franchise system. They have initiated talks about takeover of other brands, though none reaches conclusions at the moment. Across all retail outlet and corporate level, there is an adoption of digital marketing strategy by providing in-house operated ecommerce channel, social media integration, online ordering and customer-facing technology. Lastly, the launch of Project Evo indicates an attempt to revolutionize brands images through new products introduction, store reorganization and modernization. Each brand has its own project team to develop and execute innovative concepts, and initial rollouts of the plan have proven to be successful and attracted customer’s interest.
4.3 SWOT Analysis
4.3.1 Strengths
Due to the focus on franchise system, RFG has low capital investment and enjoy over 60% of total revenue from royalties and license fee. The minimal fixed costs allow better operating leverage and reduce impact on the Group’s earnings when customer’s demand is low. RFG has also registered the intellectual property ownership of all of its retail brands, which offer protection against competition from imposters, better customer’s recognition and periodic license renewal payments from franchisees. Furthermore, effective and regular market research keeps the Group’s brands up to date with customer’s preferences. This is reflected in continual innovation initiatives conducted at RFG’s outlets in terms of menu alteration, store designs and value-added services. Besides, the company has also tapped into the growing trend of digital marketing to increase brand awareness and consumer engagement. If those plans are executed efficiently, RFG’s brands will be associated with exceptional products and services and enjoy higher customer retention rate. Last but not least, RFG is in a relatively good financial position. With abundant cash reserves and conservative gearing ratio of approximately 27.4%, the Company has the necessary capacity to acquire profitable brands and expand its franchise network.
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4.3.2 Weaknesses
The first shortcoming about RFG business is the relatively low popularity of most of its brands. Compared to regular brands such as Domino Pizza, Pizza Hut or Starbucks, there is a clear dominance in brand awareness of those competitors over RFG’s brands. This indicates insufficient marketing initiatives and promotion activities in RFG’s part. While Project Evo is a proof of the Group’s attempt to solve the brand recognition problem, further review and improvement plans should be considered to maintain the project impact over the long term. Additionally, the delegation of Michel’s Patisserie supply chain to external providers poses the risk of inconsistent quality and reliability of delivery. The closure of one major bakery supplier in Queensland in 2012 left the Group with disrupted operations and a significant administration cost of $2.4 million to support Michel’s outlets in the region. The issue raises a need for thorough screening of potential suppliers prior to commitment to avoid similar business disruption.
4.3.3 Opportunities
Firstly, the recovery of global economy has appeared to have good impacts on the companies. The Australian dollar has declined dramatically. The margin for exporting coffee is projected to be higher at the end of December 2013. Also, foreign exchange gain might also be witnessed. Secondly, the social media crisis of Domino’s Pizza back in 2009 is a good case study for RFG. This costly mistake could bring about a collapse of a big brand due to public severe crisis. However, a quick and well-handled response from the CEO helped Domino’s Pizza to maintain its business despite damaged reputation. In essence, wholesale coffee roasting is a fast growing business in Australia. The executives have reached the decision to increase its coffee roasting and sales to third parties to exploit this opportunity.
4.3.4 Threats
Mobile commerce is implemented by major players within the sector. For example, Pizza Hut has successfully approached more clients by using these applications due to its convenience in ordering food online using customers’ smart phones; the group may lose its market share significantly if not join these advanced selling tools. More importantly, the coffee beverage franchise industry continues to be dominated by key players such as Gloria Jeans and Starbucks. To compete with these big brands, the group needs to improve on its coffee brand image. Lastly, decrease in government spending in the near future by politicians in the future might slow down the demand of consumers. Hence, consumers would reduce on the amount of money spent eating outside. A substantial decline might thereby be witnessed.
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4.4. Sustainability
RFG is in relatively high growth stage. Although the company leverage ratio of 38.11% is close to industry average (Damodaran data), which is an indication for maturity, they are aggressively involved in business expansion with the acquisition of a coffee roasting facility in Yalata recently. The CEO also expressed the intention for further brands acquisition in his announcement in 2013. Furthermore, RFG’s average return on capital of 10.25% is still higher than its WACC estimate of around 7%, though the rate of return is approaching the cost of return. In comparison with other sectors, the restaurant and food wholesale sectors have long cycle life, where changes in technology are less rapid and less important. Moreover, the Group’s competitive advantages in product differentiation and economies of scale from its broad network of franchisees help deter copy-cats. RFG is also sensitive to market trend, demonstrated by the shift of focus from the low-margin Donut King brand to higher margin brands in its pizza and coffee units, and the adoption of digital marketing and introduction of high technology to brand outlets. These factors position Retail Food Group as a strong player in the market with promising prospects. Nevertheless, the company is facing with fierce competition and lackluster economic conditions. It is undeniable that RFG is still a follower to market leaders like Domino’s Pizza and Starbucks. The overlap of their customers would limit RFG’s ability to control price in respond to change in customer demand. In addition, a subdued-growth economy would most likely depress demand for restaurant services. As a higher-end player in this sector, the Group’s performance could be negatively affected in the near term.
5. FINANCIAL STATEMENT ANALYSIS
5.1 Historical revenue and
profit
RFG Revenue has reached a peak of nearly $150m in 2009; and total revenue of RFG experienced a sustained decline in the next 3 years. However, revenue from rendering of services mainly from franchising operations moves on total contradicting path, and keeps going up from $46m in 2008 to around $85m during this period.
As a result, proportion of rendering revenue out of total revenue becomes increasingly larger which was more than 50% in 2011 and ends the year 2013 at nearly 70%. These remarkable
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150,000
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2008 2009 2010 2011 2012 2013
Historical revenue and profit
Operating revenue Rendering service revenue
NPAT EBIT
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increases of rendering revenue were mostly attributable to sustained franchising operations of RFG during this period namely the acquisition of Brumby’s Bakeries Holding and of Michel’s Patisseries in 2007, the acquisition of further Brumby’s master franchise territories and Esquire Coffee Houses franchise system in 2010.
Regarding net profit, it is noted that despite significant decline of total revenue during the period, net profit after tax (NPAT) has been on upward trend, rising by more than 60% between 2008 and 2013. Such opposite movements could be explained by the fact that franchising operations enabled RFG to cut off substantial operating costs which in turn, boost the profit regardless of the reduction in revenue. In fact, operating costs were dropping by nearly 20% during these 5 years.
5.2 Profitability
The evaluation of firm’s profitability is based on five financial ratios including Profit Margin (PM), Asset Turnover (AO), Return on Assets (ROA) and Return on Equity (ROE)
Considering weighted average cost of capital of firm (7.94%) as the appropriate benchmark for evaluating firm’s return on asset (ROA), it is noted that firm’s ROA during the last 5 years performed well which consistently outperformed this benchmark.
In term of return on equity (ROE), it is driven by 3 factors including profit margin (PM), asset turnover (AO) and adjusted leverage (which is the ratio of total asset to shareholders’ equity). According to the chart, among these 3 factors, adjusted leverage and AO are the main engines for the reduction of ROE. The modest increase in PM was not enough to offset the plunge in both leverage and AO which eventually resulted in a remarkable decrease in ROE from 19% in 2008 to only 12% in 2010. If using firm’s cost of equity as benchmark for ROE, firm’s ROE during the last 5 years performed better than its benchmark of 8.94% (firm’s cost of equity).
5.3 Liquidity and solvency
- Current liabilities and short-term liquidity
0%
10%
20%
30%
40%
50%
60%
70%
2008 2009 2010 2011 2012 2013
Profitability
Profit margin (PM)
Asset turnover (AO)
Return on equity (ROE)
Return on asset (ROA)
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Based on current ratio and quick ratio of RFG in the last 5 years, firm’s short-term liquidity has been at appropriate level and increasingly improved. Both ratios were much higher than 1, which indicates that its current assets were able to cover its current liabilities. Even if the liquidation of its inventories would have become more difficult, other current assets mainly cash are still sufficient to cover liabilities, that are reflected by the high quick and cash ratio. The exception in 2010 at which all liquidity ratios showed that RFG’s liquidity was significantly low was attributable to heavy short-term borrowings in this year. Such external funds were used to finance acquisitions that RFG had in this year. Media release by RFG showed that only the acquisition of Esquire Coffee House in 2010 costs RFG $9m.
- Debt and long-term solvency
Gradual decreasing of debt to total capital ratio has indicated the confidence in future growth of shareholders for lower gearing strategy. An exceptional rise in 2010 would be due to heavy borrowing to finance their acquisitions in the year. In addition, the company’s interest coverage ratio tends to increase recently which demonstrates lower default risk.
5.4 Investment management
- Working capital management
For the last 5 years, the firm has experienced erosion in its working capital management, as can be seen from a remarkable decrease in operating working capital turnover (from the peak of
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0.50
1.00
1.50
2.00
2.50
3.00
2008 2009 2010 2011 2012 2013
Liquidity
Current ratio Quick ratio Cash ratio
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2.00
4.00
6.00
8.00
0%
20%
40%
60%
2008 2009 2010 2011 2012 2013
Solvency
Debt to total capital ratio Interest coverage ratio
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$179.69m in 2010 to only $20.47m in 2013). This erosion is mainly caused by less effective inventories management, reflected by a reduction in inventory turnover. Despite the gradual movement of RFG from its own operations to franchising model since 2008, its inventories have been increasing constantly overtime due to direct supply of coffee and bakery products to its franchisors. The downturn in working capital management seems to be exacerbated recently by bad performance in account receivables management, which can be seen by a remarkable increase in day receivables (from 35 days in 2011 to 54 days in 2013), meaning that its credit policy could be problematic when it takes more time for firm to be paid by its debtors.
- Long-term assets management
The firm has not utilized efficiently its assets which could be considered as low net long-term asset turnover. However, such low ratio is mainly due to substantial increase in its long-term assets which in turn promise a more sales growth in long run. It is also noted that majority of RFG’s long-term asset is intangible asset which accounts for more than 90%. Its intangible assets consist of goodwill, intellectual property rights, and most importantly, franchise network. Such high portion of intangible assets in total long-term assets is reasonable since the strategic plan of RFG is moving from own operations to franchising operations which in turn makes the value of franchise network increasingly larger.
5.5 Sustainable growth rate
The sustainable growth rate which reflects the growth rate of firm while keeping its profitability and financial policies unchanged is driven by 2 forces including return on equity (ROE) and payout policy. Based on analysed result, firm’s growth rate decreases more substantially from 14.5% in 2008 to only 4.1% in 2013. Such remarkable plummet is attributable to the drop in its ROE and substantial rise in its dividend payout overtime.
5.6 Investment – related ratios
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2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
20.00
2008 2009 2010 2011 2012 CY2012
Trading Multiples
P/E
P/B
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Both price-to-earnings ratio (PE) and price-to-book ratio (PB) are progressively higher. High PE ratio reflects the expectation of the investors for higher future earnings growth for the whole industry. Compared with other rivals in the industry, current PE ratio of RFG corresponds to the average of the whole industry but less impressive than that of Domino’s Pizza Enterprise (which is currently around 22%).
In consistency with PE ratio, PB ratio is on upward trend. The fluctuation degree of PB ratio , which is slightly higher than 1, keeps PB at healthy level. However, such healthy PB ratio along with high ROE unfortunately could not hint any primary signal for the value of stock. Therefore, more technical analysis should be done to provide more appropriate assessment for the value of stock.
6. VALUATION
6.1 Valuation Methodology
The intrinsic value of the company is calculated based on Discounted Free Cash Flow (DCF) method. Regardless of unavailability of annual report for fiscal year 2013 (FY2013), most of statutory accounts can be estimated with reference to recent company announcements and half year data. As the result, FY2013 is used as the base year for forecasting. The equity value is the result of present value of projected free cash flow to firm (FCFF) deducted by book value of debt in FY2013. FCFF is projected based on two stage approaches with relatively high growth rate & margin for the period of FY2013-FY2017 and stable period after that.
In high growth phase, DCF model developed for Retail Food Group analyses three scenarios with different growth rates and profit margins.
Scenario 1: Base Case as per strategic plan & average rate – Regardless of strong growth in FY2013, the growth rate of wholesales business is expected to be at circa 7% after significant restructure in 2014. Franchising business is forecasted to maintain average growth rate of past recent 3 years. Gross margin and EBITDA margin also remain around the average trend of 38% and 36% respectively.
Scenario 2: Moderate Growth – Growth rate of wholesales and franchising are declining gradually at 1% and 2% respectively. This scenario indicates the situation in which Retail Food Group is unable to realize the impact of business restructure and generate enough sales to maintain the current growth.
Scenario 3: Margin Pressure – Gross Profit margin is expected to decrease to 35% by higher cost of sales in wholesales activity, while EBTDA margin also decreases by 15% below the threshold rate due to higher operational costs.
High Growth Phase
FY2013 - FY2017
Stable Growth Phase
FY2018 - ∞
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The table below demonstrates the assumptions of growth rate, margin for three different scenarios.
6.2 Weighted Average Cost of Capital (WACC)
6.2.1 Capital Structure
According to Annual Report 2012, the target gearing ratio of the company is between 40%-60% as the proportion of net debt to equity. The company’s target gearing ratio was derived based on book value and with net debt after deduction of cash and cash equivalent. This benchmark gearing ratio is hence adjusted consistently to our capital structure model with market value and no cash deduction. The long-term capital structure of RFG was calculated based on the average of market value of debt to equity ratio for the period of FY2008-CY2012 and after removal of out of benchmark range figures. As the result, the company’s long-term D/E ratio is estimated at 0.38.
6.2.2 Effective Tax Rate
Effective tax rate was derived from normal marginal tax rate of 30% and with adjustment from dividend franking credit. Due to fluctuation of effective tax rate each year and unchanged marginal tax rate, the long term effective tax rate is forecasted to be 12.77%, computed from average of three most recent years’ rates.
6.2.3 Cost of Equity
The required rate of return of RFG stock is calculated based on Capital Asset Pricing Model (CAPM). The market portfolio is assumed to be ASX200, since the stock is primarily listed
Assumptions Scenario FY2013 FY2014 FY2015 FY2016 FY2017
Revenue Growth - Goods
Normal Condition 1 22% 5% 7% 7% 7%
Growth Pressure 2 22% 4% 6% 5% 4%
Margin Pressure 3 22% 5% 7% 7% 7%
Revenue Growth - Franchise
Normal Condition 1 21% 12% 15% 13% 13%
Growth Pressure 2 21% 10% 13% 11% 9%
Margin Pressure 3 21% 12% 15% 13% 13%
Gross Margins
Normal Condition 1 38% 38% 38% 38% 38%
Growth Pressure 2 38% 38% 38% 38% 38%
Margin Pressure 3 38% 35% 35% 35% 35%
EBITDA Margins
Normal Condition 1 36% 26% 36% 36% 36%
Growth Pressure 2 36% 26% 36% 36% 36%
Margin Pressure 3 36% 22% 31% 31% 31%
17
Group 5 Assignment
and traded on ASX200. In pursuit of long term forecasting cost of equity, yield of 10 year Australian Government Bonds are referenced as risk free rate. Based on the intensive research of Michael S. Blake, John Fallon, and Ana Zolotic (2012), published by Queensland Competition Authority, market risk premium, incorporated in CAPM model, is 6%. Beta of RFG was derived and evaluated with respect to two approaches including ordinary least square regression and industry beta.
Based on ordinary regression method from 3 year weekly discrete returns between RFG and ASX200 (9th Aug 2010 – 5th Aug 2013), Beta is obtained from slope of regression line at 0.549. However, this beta is weakly supported by low R Square (0.08), hence industry beta was used instead. According to Damodaran (2013) on Australia, New Zealand, and Canada market, beta of restaurant industry, which RFG is operating, is 0.62. Since the main contribution of Australia in those markets and similarity of these markets, it was decided to utilize this industry beta of 0.62 to calculate the levered beta of RFG, which results in 0.83 for RFG Beta.
Levered Beta Cost of Equity
Industry Beta 0.62 Risk Free Rate 3.97% D/E 0.38 Market Risk Premium 6%
Effective Tax Rate 12.77% Cost of Equity 8.94%
RFG Beta 0.83
6.2.4 Cost of Debt
Since the company’s debt is solely funded by bank loans, cost of debt equals to average loan rates, which is 6.1% as stated in annual report 2012. It is assumed to be stable in the future.
6.2.5 WACC Calculation
WACC is the weighted average of after tax cost of debt and cost of equity. With circa 28% debt proportion of total capital, cost of equity of 8.94%, and effective tax rate of 12.77%, WACC of the company is therefore 7.94%. This WACC can be assumed to be the cost of capital for RFG in long term.
OLS BETA = 0.5049
-20.00%
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
-10.00% -5.00% 0.00% 5.00% 10.00%
RETAIL FOOD GROUP (RFG)
18
Group 5 Assignment
D/V Ratio 27.59%
E/V Ratio 72.41%
Cost of Debt 6.10%
Tax Adjusted Cost of Debt 5.32%
Cost of Equity 8.94%
Beta 0.83
Risk Free Rate 3.97%
Market Risk Premium 6.00%
Effective Tax Rate 12.77%
WACC 7.94%
6.3 VALUATION
6.3.1 Cash Flow Drivers
Revenue:
Revenue of RFG is contributed from wholesales and franchise activities. Therefore, it is more reasonable to allocate different growth rate for these two types of revenue. In recent years, revenue growth rate from wholesale and retail of RFG was nearly 15%. From 2011 to 2012, this rate was around 35%, therefore, it is anticipated that in 2013, turnover from wholesale and retail of this company would increase around 22%. This high growth rate could be the result of solid growth in coffee, which account for more than half of revenue from wholesale and retail. In following years, company cannot maintain the high growth rate in this section in normal condition. Therefore, this rate is expected to be 5% in 2014, which is precisely the same with plan of company, then, remain stable with 7% from 2015 to 2017. The reason for this rate is coffee market would be profitable in next following years and third-party wholesale of coffee account for big amount in total wholesale revenue. Moreover, second coffee roasting facility could increase roasting capacity and diversify risk away from the first coffee roaster in Granville
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
FY2013 F FY2014 F FY2015 F FY2016 F FY2017 F
Revenue From Wholesale/Retail
Revenue From Wholesale/Retail
0
50,000
100,000
150,000
200,000
FY2013 F FY2014 F FY2015 F FY2016 F FY2017 F
Revenue from Rendering of Service
Revenue from Rendering of Service
19
Group 5 Assignment
In addition, company has changed their policy in recent years and focused more on franchising activity. In particular, proportion of revenue from franchise went up YOY and accounted for around 64% total revenue. In 2013, company acquired Coffee Guy, a famous mobile coffee chain in New Zealand. Regardless of subdued performance in Michel’s Patisserie and other bakery brands, Donut King remains to be the rising star. Hence, growth of franchise revenue in this year is forecasted to be around 22%. The company is currently promoting franchisees to convert formats to Project Evo. The incentives include suspension of initial franchise or other fee, traditional funding repayable with interest, traditional funding with reduced payment obligation subject to performance benchmark and increase franchise service fees over the life of the franchise grant periods. Therefore, growth rate of franchise revenue in 2014 would be lower than long term trend. However, with prospect of healthy growth in pizza sector, RFG revenue is expected to grow at 15% in 2015, and 13% in 2016-2017.
EBITDA:
EBITDA margin for RFG was around 36% for the past 5years, and it would stay relatively constant in the future. Exceptionally, in FY2014, as a result of project Evo campaign, operating costs are forecasted to increase significantly and drive EBIDA margin to circa 25% for that year.
Property, Plant, & Equipment:
Capital Expenditure (CAPEX):
The company has injected c$11.1m of CAPEX in FY2013 for restructuring the business, purchasing three properties in Queensland, and acquisition of Crust Gourmet pizza in Australia and the Coffee Guy in New Zealand. For the period of FY2014-2015, Retail Food Group plans to accelerate the growth of pizza division by $18m investment for project QSR400. This investment will focus on four core objectives including:
- Incentivized initial franchisee fee arrangements, - Stimulation of multi-site owner initiatives, - Initial investments in both self-owned and franchising outlets, and - Any possible acquisitions.
The larger proportion of investment will incur in FY2015, and most of the core objectives of investment are for capital expenditure. Hence the company is expected to invest circa $4m in FY2014, and $9m in FY2015.
Depreciation: Depreciation increases substantially in FY2013 and is expected to further rise due to significant injection of capital expenditure. In accordance to strait line method of expensing capital structure, the company’s depreciation account will have a gradual increase after FY2015.
Intangible Assets: as the result of successful acquisitions of two new entities, intangible assets increase approximately $48m during FY2013. Main contributions of intangible accounts are from purchased goodwill, indefinite franchise networks and intellectual property rights.
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Group 5 Assignment
With positive future outlook, these cash generating units can be expected to continue growing in the future. As the result, no amortization cost should be provided in the near future. Intangible Assets are expected to rise significantly during high growth phase due project EVO of expanding franchising network.
Financial Income can be forecasted to grow at the multiples of average financial income to total revenue for the past five years at 0.24%, while interest rate is assumed to stay constant at 6.1% to project for financial expense.
Working Capital: proportion of working capital to revenue was implemented to project the necessary working capital for required growth of revenue, while trade payable was calculated based on proportion to cost of sales.
Leverage: Retail Food Group’s capital structure is assumed to be constant for the next 5 year projection at circa 45% debt to equity. The figure is based on threshold range announced in fiscal year 2012 with given range of net debt to equity in between 40-60%. The company is expected to fund more heavily from shareholders in the long term prospect.
Other Financial Assets – Vendor Finance & marketing funds: Vendor finance represents funding provided to franchisees for the purpose of acquiring a franchised outlet, while loans to national marketing funds represent short term funding provided to marketing funds associated with Group’s six franchise systems. Due to this nature of franchising activity, vendor finance & marking fund loan are projected on the average of recent proportion of vendor finance to franchising revenue.
6.3.2 Forecasted Free Cash Flow in High Growth Phase
$'000 FY2013 F FY2014 F FY2015 F FY2016 F FY2017 F
Profit After Tax 32,016 24,182 39,857 43,770 47,052
Non Cash/Operating Expenses 6,897 7,658 8,418 9,418 9,937
Change In Working Capital (760) 677 (1,317) (878) (348)
Cash Flow from Operating Activities 38,153 32,517 46,958 52,310 56,641
Change in Vendor Finance & Investments (7,044) 4,027 (2,333) (2,391) 265
Change in PP&E (11,500) (4,051) (9,078) (760) (797)
Change in intangible asset (48,932) 0 (15,615) (14,972) (15,779)
Change in Financial Derivatives 2,789 (512) (215) 102 745
Cash Flow from Investing Activities (64,687) (537) (27,241) (18,021) (15,566)
Free Cash Flow To Firm (26,535) 31,981 19,717 34,290 41,075
21
Group 5 Assignment
Retail Food Group has the substantial negative free cash flow in FY2013 due to business acquisitions in first half of the year, and purchase of three properties in Queensland as indicated in CAPEX part. There would be a large negative cash outflow in FY2015 as the result of project EVO and potential acquisitions. Dramatic business restructuring in franchising and coffee wholesale can be expected to provide steady growth for profit in this period.
6.3.3 Terminal Value
Terminal Growth Rate of the company is the product of average growth rate of international peers in the restaurant sector and food wholesale/retail sector, internal stable growth rate model, and company’s long-term expectation of 2.25%. To obtain relevant growth rate, international peer data in the restaurant sector includes firms in mature stage such as McDonald, Wendy, Brinker International, and Jack In The Box. Since a significant proportion of Retail Food Group’s revenue is generated from roasted coffee wholesaling, average growth rate for Food retail/wholesale companies is also considered. In addition, the stable growth rate, calculated from return of capital and reinvestment rate in FY2017, was also added to the basket.
The terminal value of the company was calculated based on Gordon Growth model with inputs from FCFF in FY2017, stable growth rate of 2.27%, and WACC of 7.94%.
6.3.4 Target Share Price
Enterprise value of the company is the present value of all free cash flow for high growth period and terminal value. After subtracting net value of debt, implied share price in each scenario was achieved via dividing this balance with total outstanding shares of Retail Food Group. Scenario 1 is likely to occur at 60%, while the rest is equally shared among scenario 2 & 3. The table below shows forecasted share price in each scenario and the target share price after accounting for weighted average from all scenarios.
Scenario 1 Scenario 2 Scenario 3
Probability 60% 20% 20%
Enterprise Value ($'000) 697,890 639,468 581,253
Net Debt Value ($'000) 92,006 92,006 92,006
Implied Equity Value ($'000) 585,797 529,724 473,232
22
Group 5 Assignment
6.3.5 Sensitivity Analysis
Perpetuity growth
With current perpetuity growth rate of 2.43%, the company share price falls within 5% area lower than market price. In case of more optimistic economic condition, the share price is expected to increase significantly to $6.25 as correspondence to 4% long term growth rate. In other hand, in case of economic downturn, long term growth rate would be lower than current economic growth rate at around 1.5-2% and indicates a sell signal to the market.
Perpetuity growth
1.50% 2.00% 2.43% 2.50% 3.00% 3.50% 4.00%
Share price 3.69 4.03 4.38 4.43 4.92 5.51 6.25
Risk free rate
In 2013, the government has reduced the cash rate to push household and business consumption after slow-down of economy especially from mining sector. Hence, it affected on yield of Australian 10 year bond, which is the benchmark as risk free rate for computation of required rate of return. However, changes in cash rate and risk free rate would occur when the economy activity change in the future, and would affect our target share price.
Risk free rate 2% 2.50% 3% 3.50% 3.97% 4.50% 5%
WACC 6.52% 6.88% 7.24% 7.64% 7.94% 8.33% 8.69%
Share price 6.31 5.70 5.19 4.74 4.38 4.02 3.72
Probability of scenarios
Currently, probability of scenario 1 is projected with highest likelihood of occurrence; however it may depart from original value in accordance to success of project EVO in 2014-2015, and overall condition of food & beverage industry.
Probability of Base Case 45% 50% 55% 60% 65% 70% 75%
Share price 4.31 4.34 4.36 4.38 4.4 4.43 4.45
4.65
4.20
3.75
4.38
0.00 1.00 2.00 3.00 4.00 5.00
Scenario 1
Scenario 2
Scenario 3
Target Share Price
RFG Share Price
23
Group 5 Assignment
6.4 Recommendation
Retail Food Group is currently operating in challenging market condition with overall slowdown of Australia economy, competitive food & beverage market. However, the company has implemented several business model restructure with higher focus on franchising activities and brand awareness since 2012. There would be more significant developing projects in coming FY2014-FY2015. Some of positive effects after these business restructure have incurred during the year 2013, and Australia economy is expected to recover after recent slowdown by easing monetary policy. However, the RFG share is evaluated to be overheated in the market by optimistic forecast, we expect moderate growth for the company in near future. According to our valuation model, we strongly recommend a hold for Retail Food Group in current situation with price range between $3.75 and $4.65 and target at $.438. The stock’s target intrinsic value is dramatically subject to the success of Project Evo & QSR400 in FY2014-2015.
7. REFERENCE LIST
Aussie Mine, 2013, Pricewaterhouse Coopers Australia, viewed 18 Sep 2013
<http://www.pwc.com.au/industry/energy-utilities-mining/publications/aussie-mine.htm>
Business Monitor International 2013, ‘Australia Food & Drink report Q3 2013’.
Damodaran, A. 2006, Damodaran on Valuation, 2nd ed, John Wiley & Sons, New Jersey.
Department of Industry, Innovation Science, Research and Tertiary Education 2012, ‘Key fact:
Australian food product manufacturing’, viewed 14 August 2013,
<http://www.innovation.gov.au/industry/FoodProcessingIndustry/Pages/Library%20Card/Austr
alianFoodProcessingIndustryDataCard.aspx>
Four Seasons the Fed Should Start Tapering in September, 2013, Wall Street Journal, viewed 18
Sep 2013,< http://blogs.wsj.com/moneybeat/2013/08/27/four-reasons-the-fed-should-start-
tapering-in-september/>
International Monetary Fund, 2013, World Economic Outlook Update, viewed 18 Sep 2013,
<http://www.imf.org/external/pubs/ft/weo/2013/update/02/>
John, H, Gleg, S. 2009, ‘Creating brand value in the food industry’, Deloitte, viewed 14 August
2013,<http://www.deloitte.com/assets/DcomUnitedKingdom/Local%20Assets/Documents/Ser
vices/Tax/Tax%20redrawn/UK_Tax_TaxRedrawn_Creatingbrandvalueinthefoodindustry.pdf>
24
Group 5 Assignment
Josh 2011, Costa coffee and Starbuck-Differentiation, Manifested Marketing_Marketing blog,
viewed 14 August 2013,< http://manifestedmarketing.com/2011/03/07/costa-coffee-vs-
starbucks-differentiation/>
Retail Food Group (Australia). [online] Available at: http://www.rfg.com.au/rfg/ [Accessed: 16 Oct
2013].
Retail Food Group. 2008. Annual Report FY2008. [report].
Retail Food Group. 2009. Annual Report FY2009. [report].
Retail Food Group. 2010. Annual Report FY2010. [report].
Retail Food Group. 2011. Annual Report FY2011. [report].
Retail Food Group. 2012. Annual Report FY2012. [report].
Retail Food Group. 2013. Interim Financial Report Half Year Ended 2013. [report].
Retail Food Group 2013. FY14 Growth Platform & Strategic Initiatives. [press release] 29 August
2013.
Retail Food Group 2013. RFG Announces $38m Placement & Share Purchase Plan. [press release] 4
October 2012.
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Group 5 Assignment
8. APPENDIX Scenario 1’s Projected Financial Statements:
RETAIL FOOD GROUP - Projections FY2013 F FY2014 F FY2015 F FY2016 F FY2017 F
$'000
Profit & Loss
Total Continuing Revenue 141,209 154,953 174,353 193,936 215,848
Revenue From Wholesale/Retail 45,740 48,027 51,389 54,986 58,835
YoY Growth 22.00% 5.00% 7.00% 7.00% 7.00%
Cost of Sales (28,588) (31,218) (33,403) (35,741) (38,243)
Revenue from Rendering of Service 95,469 106,925 122,964 138,949 157,013
YoY Growth 21% 12% 15% 13% 13%
Gross Profit 112,622 123,735 140,950 158,195 177,605
Gross Margin - Sales of Goods 38% 35% 35% 35% 35%
Other Gain & Loss (excl. Financial Income) 0 0 0 0 0
Operating Expenses (61,583) (89,376) (86,152) (97,242) (109,766)
EBITDA 51,038 34,359 54,798 60,953 67,839
EBITDA Margin 36% 22% 31% 31% 31%
Depreciation (1,054) (1,884) (2,358) (2,856) (2,949)
Amortisation - - - - -
Depreciation and amortisation -1,054 -1,884 -2,358 -2,856 -2,949
EBIT 52,092 36,243 57,156 63,809 70,788
EBIT Margin 114% 75% 111% 116% 120%
Financial income 344 377 425 472 526
Finacial expenses (6,698) (6,620) (6,947) (7,523) (8,011)
Profit B4 Tax 45,737 30,000 50,633 56,759 63,303
Income tax expense (13,721) (9,000) (15,190) (17,028) (18,991)
NPAT 32,016 21,000 35,443 39,731 44,312
NPAT Margin 22.67% 13.55% 20.33% 20.49% 20.53%
Balance Sheet FY2013 F FY2014 F FY2015 F FY2016 F FY2017 F
$'000
Cash and cash equivalent 16,798 16,798 16,798 16,798 16,798
Trade and other Receivables 19,314 19,366 23,474 25,625 28,186
Other Financial Assets 12,128 8,249 10,813 13,530 13,736
Inventories 5,136 4,028 5,030 5,389 5,487
Current Tax Assets - - - - -
Other - - - - -
Total Current Assets 53,377 48,441 56,115 61,343 64,207
Trade and other Receivables 104 139 134 156 178
Other Financial Assets - - - - -
Property, plan and equipment 18,723 20,890 27,610 25,514 23,362
Deferred Tax Assets 1,451 1,451 1,451 1,451 1,451
Intangible assets 297,381 297,381 312,996 327,968 343,747
Total Non-Current Assets 317,659 319,861 342,192 355,088 368,738
Total Assets 371,036 368,303 398,306 416,431 432,945
Trade and other payables 9,942 8,688 10,499 11,204 11,551
Borrowings - - - - -
Current Tax Liabilities 5,433 6,036 6,949 7,582 8,483
Provisions 1,987 2,031 2,286 2,554 2,834
Other 1,600 2,037 2,711 2,587 3,024
Total Current Liabilities 18,961 18,792 22,445 23,927 25,892
Borrowings 108,804 108,243 119,534 127,108 135,554
Provisions 383 448 507 550 621
Other 2,789 2,312 2,126 2,272 3,161
Total non current Liabilities 111,976 111,003 112,509 112,467 108,392
Total Liabilities 130,937 129,795 134,953 136,394 134,284
Net Assets 240,098 238,508 263,353 280,037 298,661
26
Group 5 Assignment
Cash Flow $'000 FY2013 F FY2014 F FY2015 F FY2016 F FY2017 F
Profit Before Tax 45,737 30,000 50,633 56,759 63,303
Effective Tax Rate 30.0% 30.0% 30.0% 30.0% 30.0%
Profit After Tax 32,016 21,000 35,443 39,731 44,312
Depreciation & amortisation 1,054 1,884 2,358 2,856 2,949
Loss/(gain) on disposal of financial asset - - - - -
Loss/(gain) on disposal of PP&E - - - - -
Tax Adjusted Financial Expense 5,843 5,774 6,060 6,562 6,988
Reserves - - - - -
Trade and other Receivables (2,796) (87) (4,104) (2,172) (2,583)
Inventories (1,482) 1,108 (1,002) (360) (97)
Other Assets (100) - - - -
Trade and other payables 3,570 (1,254) 1,811 704 347
Other Liabilities 48 1,149 1,901 820 1,689
Cash from Operating Activities 38,153 29,575 42,468 48,142 53,604
Change in Vendor Finance
& Other investment fund(7,044) 3,879 (2,564) (2,717) (206)
Change in PP&E (11,500) (4,051) (9,078) (760) (797)
Change in intangible asset (48,932) - (15,615) (14,972) (15,779)
Change in Financial Derivatives 2,789 (477) (186) 146 889
Cash from Investing Activites (64,687) (649) (27,443) (18,303) (15,894)
Free Cash Flow to the Firm (26,535) 28,926 15,025 29,839 37,710
Change in Borrowings (2,010) (561) 11,291 7,573 8,447
Tax Adjusted Financial Expense (5,843) (5,774) (6,060) (6,562) (6,988)
Free Cash Flow to Equity (34,387) 22,591 20,257 30,851 39,169
Equity Financing 60,600 - - - -
Dividend Paid (22,200) (22,591) (20,257) (30,851) (39,169)
Net Increase/(Decrease) in Cash 4,013 - - - -