Professional Documents
Culture Documents
TABLE OF CONTENTS
CONTENTS
PAGE
Project Objectives-------------------------------------------------------------------------------------------4
INTRODUCTION
The aim of this project is to find out the business and financial performance of Chobe Holdings Limited, a Botswana listed company in the tourism industry, for three consecutive years (1 January 2007 to 28 Feb 2010). This shall be determined by gathering an adequate amount of business and financial information about Chobe and its industry for the above time period. These shall be critically analyzed from which a conclusion would be drawn. This project can be of great benefit to current investors as well as future investors who would be interested in the performance of the company.
Chobe Holdings peer companies listed on the Botswana Stock exchange include: Wilderness Holdings Limited. A company incorporated 26 years ago in Botswana operating on Safaris in very wild, pristine and remote parks. Wilderness Holdings Limited operates 70 different Safari camps and Lodges in Southern Africa, hosting in excess of 25000 guests per annum. This company however only got listed on Botswana stock Exchange on 08 April 2010 (Botswana stock exchange, 2011). Cresta Marakanelo Limited, a hotel and lodge operator recognized as the largest in Botswana market both in the number of rooms and in the geographical spread of its vast number of hotels and Lodges across large Cities as well as key tourist areas. Cresta Marakanelo had been operating in Botswana since September 1980 but got listed on Botswana Stock Exchange on 28 Jun 2010 (Botswana stock exchange, 2011).
project so as to get more insight.I chose Chobe holdings limited in particular because it is a tourism industry listed on Botswana stock exchange. It would therefore be easier to get information for analyses purposes as their financials are publicized. Also as Chobe is apparently the oldest listing in the industry it is well established so to analyze their business and financial performance would be of much benefit to me as I could be its future potential investor.
INFORMATION GATHERING
Because of the nature of my research, I needed to use secondary data since I had to rely on data which had already been prepared by others their use e.g. financial reports. I had no use to collect primary data as all my research objectives required secondary data as they could be achieved comfortably with it. The limitation with secondary data however is the risk of distortion due to lack of directness. The sources of my information were mostly from annual reports which I easily retrieved from the Botswana Stock Exchange head office. Those from previous years, some of which were not available at the stock exchange office, I retrieved easily from the internet as the listed companies are mandated to release online. * News papers gave me a good source of information as various environmental reports were released, many of which were of effect to the tourism industry. Some reports were specifically on Chobe. Again the internet facilitated me in this area as many of the reports were released in the reporters websites. * I bought Journals on the tourism industry in Botswana and some government publications which were of much benefit to me in understanding the tourism industry and factors affecting it in the period. My ACCA study texts were of paramount importance and a good source of information. I could always refer back to them to facilitate my ratio calculations and business analysis techniques.
previous years and competitors. An important limitation with ratios however is that they may not be truly depictive in comparison because of the subjectivity in some aspects of financial statements. One entity for might decide to add depreciation to cost of sales for example while another expenses it. These subjectivities make comparison less depictive. * Computation of graphs was also a good technique use. Graphs are diagrams that show how one or more business or financial elements varied within the period. These were very useful to analyse changes in the business and financial elements. The limitation with graphs however is that an era in the data for computation can falsify the graph. The limitation with graphs however is that an era in the data for computation can falsify the graph. A good business technique I used for business analyses was my knowledge the PESTEL Model. This model is an environmental analyzing model and it helped me determine and analyse the political, social and economic factor affecting Chobe in business. The major limitation with this technique is the subjectivity in the classification of factors. Lynchs Expansion matrix was a good model that I employed to determine Chobes methods of growth.
PRESENTATION AND CRITICAL FINANCIAL AND BUSINESS ANALYSIS / EVALUATION OF FINDINGSPROFITABILITY AND RETURN PROFITABILITY AND RETURN RATIOS
Revenue growth Profit before interest and tax (PBIT) Margin Profit before tax margin After tax / Net profit margin Reduction effect of Tax on profitability Return on equity Asset turnover (Times) Return on capital employed (ROCE) Feb-10 -11.60% 22.40% 22.30% 18.80% 3.90% 18.00% 0.7 15.80% Feb-09 20.40% 12.90% 12.30% 4.50% 7.80% 12.70% 0.87 11.20% Feb-08 11.5 42.50% 41.70% 32.50% 9.20% 54.90% 1.2 50.90%
Graph (a) shows that Chobe Holdings revenue was rather fluctuating over the three years. It was 85.94miliion in 2008, rose massive by 38.678million in 2009 then dropped by P27.343 in 2010. It however earned much lesser revenue than its two major competitors in all three years (see appendix) but this is expected as Chobe control approximately lesser market. A better comparator will be PBIT margin and Chobes was fluctuating. 42.5% in 2008 was good but the drop to 12.9% in 2009 was rather too large, despite the massive increase in revenue. This was likely to have resulted from the impairment of goodwill by P30.336million in 2009, which reduced PBIT by the same amount. The margin however improved in 2010 to 22.4% as expenses reduced. In all three years however Chobe had better profit margins than its two competitors. The financial costs shown by graph (b) did not have much impact on the profitability of Chobe throughout the years, as shown by the negligibly minor differences in the PBIT
margins. This was because in all three years Chobe earned much more financial income (from subsidiaries) than it paid in financial costs. Indeed the trend in net financial incomes over the years was increasing (graph c) and in such cases profits are expected to also increase. Surprisingly however the trend in the after tax profits (graph d) were rather fluctuating and so were the profit margins. 2009 particularly experienced very low profits of only P5.569million, a 69% drop from 2008 and PBIT margin dropped by 75%. This was a big decline in performance but not to cause much worry as this was caused by the once off expenses described above which were incurred in 2009. Indeed 2010 showed some improvements in these measures. The reduction effect of tax on profitability over the three years had a reducing trend. This shows that compared to its earnings, Chobe was having lesser tax expenses every year. In comparison to the same measure for Wilderness holdings and Cresta Morakanelo, Chobes major competitors, the same decreasing trend was not found. This shows that the trend was not caused by general reductions in tax charges by tax authorities but by good managerial skills in tax reduction strategies (which were hopefully done legally) by the management of Chobe. They can be applauded for this. In terms of returns, Chobe limited appears to have had a good performance in 2008 with ROE of 54.9% and ROCE of 50.9% despite having borrowings of P2.199million which increased capital employed. Net assets were 1.2 times the revenue generated. The 39.7% and 42.2% drop in ROCE and ROE respectively in 2009 was rather worrisome. This however could have resulted from the major acquisition of shares in Ker & Downey Botswana (Pty) Ltd and The Bookings Company (Pty) Ltd in 2009 which increased equity capital employed by a total of P66.745million, thereby reducing the two ratios. Shareholders however got an improvement in 2010 as they would have expected. No equity was attributed to minority interests in 2010 and this could be assumed to have contributed to the improvement. It however appeared that the owners of Wilderness and Cresta were earning more returns than that of Chobe. For example in 2010 they had a ROE of 38.7% and 28.5% respectively, which were much higher than Chobes 18% (see appendix).Asset turnover on the other hand kept on worsening from 2009 to 2010 (0.87 and 0.7 respectively), showing that revenue generated each year was actually less than the value of capital employed in years. The higher profit margin in 2010 however compensated for the lower asset turnover, giving a better performed in 2010 than 2009. Again In comparison to its rivals Chobe limited does not make much use of its assets. Wilderness holdings for example had asset turnover of above 3 in 2009 and 2010 which were much better than Chobes.
In all three years Chobe limited had current ratio above 1, showing that current assets surpassed current liabilities, and above 2 in 2008 and 2009. A slight drop by 0.22 occurred in 2010 which though minor does indicate a rise in liabilities as compared to assets. As Chobe limited is involved in tourism, owning a series of lodges and safari camps, inventory is mostly in consumables and expected to be fast. A good
quick ratio should therefore be that far above 1. The 1.98 quick ratio in 2008 was therefore quite good as it was close to 2. 2009s 1.96 was equally good as the 0.02 drop was a minor one. An improvement is always expected though, but there was ratter a further drop in Chobe limiteds quick ratio in 2010 and this time by a more significant 0.2. This notwithstanding, Chobe limited still had better liquidity ratios than its major competitors (see appendix). As for Wilderness holdings all its liquidity ratios were below 1 in 2009 and 2010 signifying liquidity problems. These drops in Chobes 2010 liquidity ratios however, though not very large may be an indication that 2010 was not quite a good year in Chobes liquidity. This is further supported by the fact that of the three years 2010 was the only that experienced a negative cash flow indicating that Chobe paid out more cash in that year than it received, despite the sales of PPE for proceeds of P6.556million in attempt to improve liquidity. This declination in liquidity can be said to have resulted mainly from the purchase of minority interests worth 5.593million. This was a once off purchase though and not likely to be recurring. Future improvements are therefore most likely. From the look of things 2008 appeared to have been the best liquid year for Chobe as it had much higher net cash flow of P11.58million. In 2009 however Chobe earned more cash from operations, purchased more and sold less PPE, paid more tax and redeemed more shares in subsidiaries yet had a positive cash flow of 1.007million. This was very good. EFFICIENCY (TURN OVER) EFFICIENCY RATIOS Feb-10 9 days Feb-09 56 days 11 days 54 days 101days Feb-08 60 days 12 days
Chobe limited held inventory for an average of 60 days in 2008 and slightly reduced by 4 days in 2009. Inventory holding can be very costly so a reduction in inventory holding period is rather good. Inventory days could not be determined in 2010 as there was no cost of sales in Chobes publicized income statement (they were probably incorporated into operating expenses).In 2008 Chobe limiteds trade receivable took an average of 12 days to pay which was quite low and good. The average receivable days then decreased by 2 days each successive year and were equal to that of Wilderness in 2009 (11 days lower than Crestas) but decreased in 2010 while that of Wilderness and Cresta increased (see appendix). This showed improvement management of receivables by Chobe, better than its rivals.In 2008 Chobe limited took an average of 101 days to pay its trade payables. This however reduced by more than half in 2009 to 54days. This shows good management of payables as Chobe may have taken advantage of early settlement discounts and paying suppliers early always gives the company a good image with their suppliers. 54 days however was still much higher than that of Wilderness and Cresta (16 days and 46days respectively) so further reduction in Chobes trade payable days can better its competitiveness. No cost of sales was identified in 2010 so trade payable days could not be determined.
Chobes debts ratio was basically stable over the three years. On average each year had a debt ratio of 23% which was far below 50% and can be considered to be good. In comparison with its rivals, Chobe was more solvent as it had much lesser debtscompared to total assets. Wilderness and Crestas debts ratios for 2010 were 64.9%and 34.5% respectively.In 2008 Chobe limited was very lowly geared at 3.2% and the long term debts were only 3% of equity which was very safe. Chobe then paid off all long term debts in 2009 becoming zero geared and remained as such in 2010. It had become whole equity funded and therefore not quite risky to lenders. This was very good as Chobe can easily fund future expansion by debts finance since the bank and other financial lenders could be very willing to lend to it. Furthermore Chobe limited had properties plants and equipments worth P71.342million in 2010 with which future borrowings can be secured. Chobes competitors on the other hand were of less likelihood to get debt finance since they were more risky as they were much more geared.Chobe limited had interest cover of 57times in 2008. This was quite good considering the fact that the company had to pay interests on P2.199million worth of long term borrowings in that year. There were no long term debts in the subsequent years and so the interest cover would be expected to be more. Surprisingly however in 2009 interest cover fell to 22 times. This was due to the increase in short term borrowings which increased interest paid. A remarkable recovery then took place in 2010 with interest cover rising massively to 258times. This came as a result of the reduction in short term debts coupled with the fact that there was no long term debt. Interest paid was therefore largely reduced to only P86000 compared to interest of P722000 paid the previous year. This was good performance considering the fact that the interest cover for Wilderness and Cresta in 2010 was only 10 and 11 times respectively (see appendix).
In 2008 Chobe limited had EPS of 37.16t and this was the highest of the three years. This can largely be attributed to the large after tax earnings of P27.937million in 2008 which was the highest earnings by Chobe limited in the three years. It is however worth noting that in 2008 Chobe limited only had shares with a weighted average of P68.548milion which can be said to have caused the high EPS. More ordinary shares were then issued in 2009 and this can be said to have caused the massive fall in EPS in 2009 to only 7.19t, besides, Wilderness in that year was worse-off with EPS of only 1.14t (see appendix). But it can also be argued that this ought not to justify the low EPS of Chobe because shareholders would expect there increase in invested capital to also increase the years earnings. But earnings rather dropped by P22.368million in 2009. This was due to the increase in operation and finance costs in 2009. P23.527million of employee benefits had to be paid and good will was impaired by P30.336million. These can be said to have caused the reduction in EPS. This reduction however was not taken lightly by the market. No wonder Chobe limiteds market share price at the end of 2009 was only 193.28t, the lowest of the three years, as shown by graph (e). Performance however did improve in 2010 with EPS of 21.23t, and higher than its competitors. weighted average share number remained almost the same but earnings improved by P12.678million, improving EPS and raising Chobe limiteds year end share price to 237.54t ( graph e).In 2008 Chobe limited paid dividend of 19t per ordinary share from EPS of 37.16t. 51% of the net profit for the year was distributed as divided, retaining 49% and dividend cover was good at 1.96 times (graph f). Chobe limited then increased dividend per share by 2t per share in 2009 despite the lower EPS of only 7.19t recorded at that year end. This meant that all the earnings for the year were paid as dividend to shareholder with an additional 13.81t per share gotten from the previous years retained earnings, giving a massive dividend payout ratio of 292%. As such Dividend cover also went down below 1 at 0.34 times (graph f).It does not appear to be a wise decision to pay off so much divided in a year of low earnings but the most obvious reason for this is to maintain a good market share price by keeping the shareholders expectations satisfied in maintaining a good divided growth from the previous years, maintaining the companys good image in the market. This however appeared to have worked as Chobe limiteds market share price did improve in 2010 by 44.26t (graph e). EPS improved by 195% but only 51% of it was paid as dividend, improving dividend cover in 2010 by 1.59 times. This reduction in dividend payout in 2010 was probably to restore the retained earnings paid as part of divided in 2009. |
CHOBES BUSINESS DEVELOPMENT AND GROWTH AND ITS IMPACT ON BUSINESS PERFORMANCE
| Feb-10
| Feb-09
| Feb-08
| 926
| 2053 | 1149 |
Difference between revenue per bed night available and revenue per bed night sold (P) | 2159 | 3081 | 1018 | Occupancy Ratio | 30% | 40% | 53% |
Chobe holdings limited showed a very remarkable business growth in the year ended February 2009. This was particularly demonstrated by the massive expansion of assets as shown in graph (g). The groups total assets stood at P86.864million in 2008 and in 2009 increased by a massive 87.7% to P163.059million. This growth can be attributed to the major acquisitions that took place in 2009. P51.848millon worth of tourism land lease rights was acquired as well as two companies worth 21.145million (The Bookings company and Desert & Delta Safaris). Organic growth also commenced as various capital improvements worth 26.4million were also conducted at existing and acquired camps and lodges (Sir QKJ Masire, 2009).
It is worth noting that this business growth did not increase Chobes financial risks as no debts were added. This was good as growth was wholly equity funded, mostly through share issue and also with retained earnings (Sir QKJ Masire, 2009). Nevertheless, though revenue grew in 2009 it appears not to have supported the increase in operation costs resulting from this growth. Both net profits and cash flow got a hard blow and both diminished massively.
In attempt to recover from this catastrophic fall Chobe limited probably decided to cut down growth and this explains the asset reductions in 2010 (graph g). PPE were sold off and the company realized a gain of P34million from the disposal of its investment in Kalahari Holiday Tour (Pty) Ltd which had not been contributing to the groups profitability for some time ( Mmegi, 2010). Also the increase in available bed nights as shown in graph (h) and reduction in price per bed night in 2010 (graph h) were probably done with the hope that more customers will be attracted to increase revenue and restore profitability and cash flow. Disappointingly however the occupancy rate in 2010 was only 30% and revenue growth declined by 11.6% diminishing cash flow to negative (see appendix). Miraculously however costs were successfully reduced despite the increments that took place in this period in consumer price index for food, alcohol, electricity and fuel, all which were paramount to Chobe (graph k below). Profits drastically improved by more than two folds.
| 63.3 | | |
(k) % changes in Consumer Price Index (CPI) sub indices due to inflation between December 2009 and March 2010 (Central Statistics Office, 2010) | The year of 2007 earmarked the beginning of world recession hitting hard on Botswana tourism industry as tourism became an expensive leisure (The Association of Corporate Travel Executives and KDS, 2010). This recession continued into 2008 and 2009 increasing inflation rates. Inflation in Botswana was up by up to 13.7% (diagram j). Sunday standards recorded an estimated 19% decline in tourist bookings in 2009 and some facilities are said to have recorded cancellations (Gowenius Toka, 2009). This was probably due to reductions in tourists disposable income due to the recession. Chobe Holdings limited is a company in the tourism industry in Botswana and likely to be affected.
The exercise of caution in spending is always expected to be a companys response to recession. Surprisingly however Chobe engaged in business growth in 2009 during the heart of recession. Why such a decision? Sunday Standards Botswana reported in 2009 that the Chief Executive Officer of the
Botswana Tourism Board, Myra Sekgorwane, maintained that Botswanas tourism industry had remained elastic despite the negative and seemingly unbeatable impact of the unfolding global recession on world economies. She said Botswana was not severely affected and that investment appetite had not at all declined (Gowenius Toka, 2009). As such many companies had decided the best thing to do in that circumstance was to capitalize on the available investment opportunities.
Indeed Chobe was probably a partaker of this idea and did capitalize in 2009, expanding its asset holdings (graph g) to probably obtain more market share as it expands.
This has severely affected the companies in the industry including Chobe holdings because the majority of their clients access or depart via this traditional tourism gateway of Maun. This factor has therefore further added to delays, costs and travelers inconvenience.
In response to this threat, Chobe combined forces with Wilderness Safaris (a wholly owned subsidiary of Wilderness Holdings Limited) in condemning Air Botswanas poor service. They did this by holding a series of meetings with the Civil Aviation Authority Botswana in 2008 and 2009 where they complained of Air Botswanas detrimental effect on their businesses ( Fly Africa, 2010) and clamored for an open sky policy which would give competition to national carrier so that services may improve (Sunday standard, 2010). To this end, efforts paid and a breakthrough occurred in February 2010. The government adopted an open skies policy and although it remains committed to protecting Air Botswana, this was a breakthrough to the tourism industry (Fly Africa, 2010). Since then the government has also been having plans to privatise Air Botswana. As reported by Mmegi, Chobe Holdings Managing Director Jonathan Gibson in response to this said that this privatisation would be a major breakthrough for Chobe as it will bring more confidence to the tourism industry (Mmegi, 2010).
This good performance in 2008 coupled with other factors outlined above must have encouraged Chobe to grow its business operations despite economic crises at hand. The world cup at hand was however a good motivator and in 2009 Chobe engaged in major growth both organically and by acquisition. Though gearing did not increase, operation and finance costs did increase from this growth and enough revenue could not be generated to support the growth. As such profit margins declined as well as shareholders returns. Good dividends still had to be paid and the little profits generated were all paid to shareholders which further worsened the status quo. Share price still went down and cash diminished. Indeed this strategic growth caused major declination in performance in 2009. Plans had to be devised to improve performance in the following year.
In 2010 some fixed assets were sold for cash yet cash flow went negative because revenue declined further. Profits however miraculously improved due to successful cost reduction strategies employed
one of which was in tax payment. Profit margins improved and so did shareholders returns. Indeed Chobe holdings limited made a recovery in 2010, an improvement in performance.
Another good applauder is the efforts the company made in 2008 and 2009 to eliminate the threat posed by Air Botswana, which did materialize. This shows very good performance.
LIST OF REFERENCES
Bakwadi, J. (2009). Chobe Holdings Limited press release. Mmegi. 15 Jun 09, 5 BPP Learning media Ltd. (2007) ACCA Study Text Paper F7 Financial Reporting (International). London: BPP House
BPP Learning media Ltd. (2007) ACCA Study Text Paper F9 Financial Management: London: BPP House
BPP Learning media Ltd. (2007) ACCA Study Text Paper P1 Governance, Risk And Ethics: London: BPP House
BPP Learning media Ltd. (2007) ACCA Study Text Paper P3 Business Analysis: London: BPP House
Central Statistics Office (2010), consumer price index Ministry of Finance and Economic Empowerment, Port Louis. Central Statistics Office. Retrieved from: http://www.icsc.un.org/resources/pdfs/2009/pp/botswana-09.pdf [Accessed 4 Feb 2011] Chad Leechor, et al (2008) Developing tourism in Botswana: progress and challenges Botswana department of tourism, Gaborone: government printers Chobe Holdings Limited (2009) Annual report and financial statements 2009. Kasane:Chobe Holdings Limited. Chobe Safari (2011) Botswana Top Finalist in WTTC Tourism for Tomorrow Awards [Online]. Retrieved from: http://www.chobesafari.com/trip-tips/botswana-finalist-in-tourism-for-tomorrow-award-underdestination-stewardship-category.html [Accessed 25 jan 2011]
Creta Morakanelo Limited (2011) Creta Morakanelo Limited [Online]. Botswana Stock Exchange. Retrieved from: http://www.bse.co.bw/listed_companies/listed.php?company=CRESTA. [Accessed 21 jan 2011]
Eli, Neil, Pual(2009) Botswana tourism industry remains elastic in global recession [Online]. Retrieved from: http://www.palapye.wordpress.com/2008/12/09/global-recession-hits-tourism-sector. [Accessed 25 jan 2011]
Eli, Neil, Pual(2008) Global recession hits tourism sector [Online]. Retrieved from: http://palapye.wordpress.com/2008/12/09/global-recession-hits-tourismsector. [Accessed 25 jan 2011]
Fly Africa (2010). Chobe bemoans Air Botswana services. Fly Africa. *Online+ Retrieved from: http://www.flyafrica.info/forums/showthread.php?32335-Chobe-bemoans-AirBotswana-services [Accessed 13 Feb 2011] Gowenius T (2009) Botswana tourism industry remains elastic in global recession. standay standard. 29 march 2009, 7
Mmegi (2010). Chobe Posts Good Results Optimistic About Air Botswana Mmegi *Online+ Retrieved from: http//www.mmegi.bw [assessed 15 Feb 2011]
Stanley St Labs (2011) Tourism trends and economy worldwide [Online]. Economy Watch. Retrieved from: http://www.economywatch.com/world-industries/tourism/world.html
Wilderness holdings Limited (2011) Wilderness holdings Limited [Online]. Botswana stock Exchange. Retrieved from: http://www.bse.co.bw/listed_companies/listed.php?company=WIL. [Accessed 21 jan 2011]
World travel and tourism council (2007) Botswana the impact of travel & tourism on jobs and the economy. London: World travel and tourism council
APPENDICE
FORMULAR SHEET FOR RATIOS RATIOS Profit before interest and tax (PBIT) Margin Profit before tax margin Net profit margin Reduction effect of Tax on profitability Return on capital employed (ROCE) Return on equity Asset turnover (Times) Debts ratio Gearing Debts to Equity ratio Equity to Net Asset ratio Interest Cover (Times) Current Ratio Quick Ratio Inventory days Trade Receivables Days Trade Payables Days Earning Per Share (EPS)(Thebes) Dividend Per Share (Thebes) Dividend cover (times) Dividend Yield Dividend Pay Out Ratio Price Earnings Ratio Revenue per available bed night Revenue per bed night sold Estimated annual growth rate in tourist number Estimated revenue growth rate each year Estimated earnings growth rate each year Estimated dividend growth rate each year FOMULAR (PBIT/Revenue)*100 (Profit before tax/Sales)*100 (Profit for the period/ Sales) (Profit before tax margin Net profit margin) (PBIT/Capital Employed)*100% (PBIT)/ Total Equity)*100% (Revenue/Capital Employed) (Total liabilities/ Total assets) (Borrowings/(Equity + Borrowings))*100% (Borrowings/Total Equity)*100% (Total equity/Capital employed)*100% PBI T/ Interest charges) (current assets/current liabilities) (current assets-inventory)/current liabilities) (Inventory/cost of sales)*365days (Trade receivables/Revenue)*365 (Trade payables/cost of sales)*365 (PA T/ Weighted average number of shares) (Total Dividend/total shares at y ear end) (Earning per share/ Dividend per share) (Dividend per share/ex div share price) (Dividend per share/Earning per share) (Ex div share price/ Earnings per share) (Revenue/ total number of bed nights available) (Revenue/ total number of bed nights sold) ,3(2006 tourist number/ 2003 tourist number) - 1} * 100% ,2 (current year revenue/ previous year revenue) - 1 } * 100% ,2 (current year EPS/ previous year EPS) - 1 } * 100% ,2 (current year dividend per share/ previous year dividend per share - 1 } * 100%
Profitability and return ratios measures how much the company makes returns to maximize the wealth of the shareholders. The return often used is Profit Before Interest and Tax (PBIT) as it is generally considered to be a better depicting measure than profit after tax because tax charges can vary beyond the entitys control. PBIT is the amount of profit that the company makes before paying interests of long term borrowings such as debentures and bank loans. | Profit before interest and tax (PBIT) Margin |
PBIT margin expresses PBIT, after operations as a percentage of revenue. This ratio will help determine the impact of operating activities on revenue | | Profit before tax margin |
This expresses the profit earned before tax expenses are pay as a percentage of revenue. This will help find out the impact of the interests and other financial costs on the profitability. | | After tax / Net profit margin |
This ratio expresses as a percentage of sales the earnings the company remains with after paying for tax. Net profit margin when compared with the profit before tax margin gives a difference which can determine how much impact tax had on profitability. |
This ratio relates the profitability to the total amount of funds invested in to the company (capital Employed). ROCE expresses PBIT as a percentage of the Capital employed. The higher the ROCE, the more profitable the company is and a profitable company must have a ROCE above the rate or cost of borrowing. | | Return on equity |
Return on equity ignores the debts element of capital employed. It relates the profitability of the company with the total contribution of the owners of parent (equity). It expresses PBIT as a percentage of total equity, enabling owners of Chobe limited to know how much profit the company has made for every P100 invested. | | Asset turnover (Times) | Asset turnover measures how well the assets of the company are utilized to generate revenue. It shows how many times their value the assets generate in sales. Generally asset turnover betters above 1 and worsens below 1. Assets turnover however is linked to profit margin and ROCE (ROCE = Net profit margin X Asset turnover) and should not be considered in isolation (BPP Learning Media Ltd, 2007). | | LONG TERM STABILITY AND SOLVENCY RATIOS | These set of ratios measures the long term survival of the company by a consideration of how much debts (long term and (or) short term) the company owes in relation to its size in terms of profitability and other funding (equity). If a company is heavily in debt the risk that it may not be able to pay back the debts will be high. As such the bank and other potential lenders may not be willing to provide more funds. It will be most likely that little or no funds will be available to distribute to shareholders after the high debts interests are paid. The risk of liquidity will rise and investors would not wish to invest in such a company. | Debts ratio |
This ratio considers the entire debts of the company weather current or long term and expresses it as a percentage of the total assets of the company. The lower the debts ratio the better in most cases and a benchmark of 50% is often set. | | Gearing |
Gearing or leverage is concerned about the companys long term interest bearing debts. Often the capital structure of a company consists of long term interest bearing borrowings as well as shareholders equity. Gearing is a measure of the portion of capital that is long term debts. Often times a gearing of less than 50% is low and good while that above 50% is high. | | Debts to Equity ratio |
This measure compares long term borrowings to total equity, the two component of a companys capital structure. Generally a company should be more equity financed than debt financed or at worse the two should be equal. A company having more debt finance than equity would be considered very risky by investors. | | Equity to Net Asset ratio |
Equity to net asset ratio expresses equity as a percentage of net assets (capital employed). The higher the equity to net asset ratio, the lower the company is geared and the lesser the risk of bankruptcy. | | Interest Cover Ratio (Times) |
Interest cover ratio is a measure that shows if the company is able to pay the interests due from its long term borrowings comfortably considering the amount of profit before interest and tax (PBIT) available. It shows by how many times the PBIT available would be able to pay for the interests due. An interest cover of less than 2 would often be considered too low and would show that a fall in PBIT can have a significant effect on the profit available for shareholders. If less than 1, there is a serious bankruptcy risk. A ratio of 3 can be acceptable but the higher the better. | | SHORT TERM SOLVENCY AND LIQIDITY RATIOS | Liquidity can be defined as the amount of cash that can be readily available for a company to use to quickly settle its debts (operation expenses) as they are due as well as any other unforeseen costs that would require cash payments quickly. Liquid assets include cash in hand as well as other current assets that can quickly be converted into cash such as short term investments, fixed term deposits and trade receivables. Liquidity ratios are therefore a comparison of current assets with the current liabilities to verify how sufficient the current assets are to pay for the current liabilities. | | Current Ratio | Current ratio is simply a ratio of current assets to current liabilities. A ratio greater than 1 should be expected as current assets should always exceed current liabilities and if below 1 signifies serious liquidity problems. A comfortable ratio should be above 2 but generally the higher the ratio the better as it is good to paid for current liabilities very comfortably. Care should be taken however for current ratio not to get too big as it would indicate the tying up of funds in the business than necessary, hindering optimum profitability.|
| Quick Ratio |
Inventories are one type of current asset that are not very liquid. This is because there is often no guarantee that inventories would be sold for cash very quickly. They are often held in stock for a long time and if sold, sold on lengthy credit periods. Because of such limitation, quick ratio was adopted to exclude Inventories in the comparison of current assets to current liabilities. For companies with fast inventory turnover (e.g. Chobe), the quick ratio is expected to be more than 1. | | EFFICIENCY (TURN OVER) RAIOS |
Closely related to the liquidity ratios are the efficiency ratios. It is a measure of how efficient a company manages is liquid assets as well as the current liabilities which form part of the working capital. The key areas in this regard are inventory, trade receivables and trade payables. | Inventory days | This ratio indicates an approximate estimate of the average number of days inventory is held by a company before being used or sold. It shows how vigorously a company trades. Inventory holding can be costly so generally the lower the inventory days the better. | | Trade Receivables Days | This is a measure of how long it roughly takes for trade payables to pay. It is a companys responsibility to manage their trade payables and make sure they pay up as quickly as possible within their credit limits. If customers take too long to pay, the company might find itself not having enough money to pay off its short term debts. | | Trade Payables Days |
Trade payable days show on average how long a company takes to pay its trade payables. Purchases are not often disclosed in financials so cost of sales is used to estimate average trade payable days. | | SHAREHOLDERS INVESTMENT RATIOS | The major goal of a company should be to maximize the wealth of the share holders. These ratios are therefore used by the shareholders of the company as well as potential investors to assess the value or quality of their investments in the company. Investors would use these to asses if the return they can
expect from the company is satisfactory compared to the risk they are taking to invests. For listed companies such as Chobe holdings limited investors also take cognizance of the current share price of the company. | Earnings Per Share (Thebes) |
This is simply a measure on how much net profit for the year is attributable to each ordinary share. Often times a high EPS shows good company performance and management can be appraised based on this. EPS can also largely influence the share price of a company. Thus, a share price can fall if a low EPS is anticipated. | | Dividend Per Share (Thebes) |
This ratio simply shows the proportion of EPS that has been paid as dividend as attributed to each ordinary share held. The remaining portion of EPS is then retained to finance future growth. Generally shareholders would want to earn as much dividend as possible and would prefer to invest in a company with a consistent or increasing dividend growth. | | Dividend cover (times) | Dividend cover shows how comfortably a company can cover for the dividend to be paid to the shareholder considering the amount of earnings available before dividend. A good dividend cover should at least be more than 1. A ratio of 1 would indicate that all profit is distributed to shareholders. Less than one shows more was distributed than what was earned in the year. | | OTHER BUSINESS PERFORMANCE RATIOS | Revenue growth | |
A progressive company is that which has an increasing growth in its revenue. Persistent declination in revenue growth can be a sign of financial difficulties. | | Revenue per bed night sold (P) | This shows the trend in the average price charged for each bed night each year and identifies significant price changes. This however ignores Chobes other because other revenue earners such as safari air tours since they are comparatively minor. |
This shows how much revenue is attributable to each bed night that was available. |
Difference between revenue per bed night available and revenue per bed night sold (P) | This indicates the amount of revenue from bed nights sold that has been used to cover for the bed nights not sold. This therefore shows how much cost that would have been avoided if all available bed nights wear sold. | | Occupancy Ratio | |
This simply how much percent of the bed nights available that was actually sold. | Earnings growth |
Net earnings are after tax profits for each year. A health company would be expected to be growing in its earnings over the years. | | Dividend growth |
One of the factors that keep shareholders satisfied in a company is consistent growth in dividend earned. A decline in divided growth can be interpreted by the market as bad times and this can severely affect the market share price. |
RATIOS Profit before interest and tax (PBIT) Margin Profit before tax margin Net profit margin
Return on capital employed Return on equity Asset turnover (Times) Debts ratio Gearing Debts to Equity ratio Equity to Net Asset ratio Interest Cover (Times) Current Ratio Quick Ratio Inventory days Trade Receivables Days Trade Payables Days Earnings Per Share (Thebes)
50.32% 38.68% 4.81 64.90% 35.90% 56.10% 64.10% 10 0.75 0.69 13 19 29 20.57
10.69% 12.95% 3.61 66.00% 42.40% 73.50% 57.60% 2 0.58 0.52 9 11 16 -1.14
23.94% 28.47% 1.58 31.50% 11.16% 12.56% 88.84% -11 0.73 0.69 -4 30 -47 10.13
33.76% 40.92% 1.58 31.00% 14.11% 16.42% 85.89% -15 1.07 1.03 3 23 46 13.17
PRESENTATION OF COMPILED FINANCIAL STATEMENT OF CHOBE HOLDINGS LIMITED, FEB 2008 TO FEB 2010
| Feb-10
| Feb-09
| 97,275 | -
| 107,271 | |
| 75,395
Other income
| (69,143)
| (31,216)
| (22,386) |
| (23,527)
| (15,892)
| -
| (30,336)
|-
| | 35,199 |
| 19,650 | | 34 | 2,494 | | -
| 13,368 | ||
| 2,418 | 1,176 |
| 15,064 | |
| (388) | 316
| 141
| | 35,876 |
| 21,704 | |
| 15,380 |
Income tax |
| (3,457)
| (9,811) | 5,569 | | |
| (7,939) | 27,937
| |
| |
| 6,260 | 25,475
| 18,247 | |
Currency translation reserve | 429 | (323) | 78 Other comprehensive income | Feb-10 | Feb-09 | 429
| (323) | 78 |
| Feb-08
| P '000 | |
| 18,676 | | | | | | |
| 5,246 | 28,015
| |
| 19,413
| 5,937 | 25,553
| 18,676 | | | | | |
| 89,440 | | | |
| |
| 87,093
| 68,548
| 11
| 21
| 19
| 15,965
| 14,445
| 7,341 |
| 237.54
| 193.28
| 248.14
| Feb-10
| Feb-09
| P '000 |
ASSETS
| |
| |
| |
| |
Non-current assets
| 41,787 | | |
| Feb-10 | | | | |
| Feb-09
| P '000 |
| 2,387 | 2,669 | 1,734 | | | 2,370 | 3,836 | 2,892 | | 1,447 | || | 28,541 | 31,593 | | | 25,520 | | |
| 26,458 | 40,121
| 35,804
| 163,059 | | | |
| 86,864 | | | |
| 15,154 | |
| 19,461 |
| 121,635
| 58,229 | |-
| 120,869
| 126,568
LIABILITIES
| | | | -
| 17,203 | 2,199
| 17,203 | | |
| 3,406 | 4,929 | 3,823 | | | | | | | | || | | 2,678 | 12,923 ||||2 | 2,576 | 2,913 | | 11,561 | 68 | 68 | | 19,066 | 15,108 | | 8,302 | |
| 19,007 |
Total liabilities | |
| 36,210 | | | | | | | |
| 36,491
| 20,345
| 157,079
| 163,059
| 86,864
| | | |
| | | |
| Forien Currency
| | Translation reserves |
| 15,154 |-
| (480) |
Currency translation differences Dividends paid (finanal 2007) | Profit for the year | | -
| (8,637) | 25,475
| 43,878 |
| Total Changes in |
| Equity |
Currency translation differences Dividends paid (final 2007) Profit for the year | | |
| (8,637)
| 8,290 | 66,519 | | | | |
| |
| Stated Capital
| Retained Earning
| Translation reserves |
| | 43,878 | | | | || 78 || | | || | (803) | | || | | | | |
| 15,154
of Ker & Downey Botswana (Pty) Ltd | 66,600 Acquisition of majority shareholders share of Desert&Delta Safaris African Travel | 145 Currency translation differences Dividends paid Profit for the year | | |||| |-
| (16,994) | 6,260 | |
| 21,000
| (13,683)
| 19,461 |
| (725) |
| Total Changes in |
| Equity |
| 8,290 | 66,519 | || |
| | |
Acquisition of the issued share capital of Ker & Downey Botswana (Pty) Ltd | Acquisition of the majority shareholders
| 66,600 | | || |
share of Desert and Delta Safaris African Travel (Pty) Ltd Currency translation differences Dividends paid Profit for the year | | | | | | | | 78
| 145 |
| (16,994)
| (691) | 5,569 | | | |
| (7,636) | |
| (319) | | |
| 5,974 | 5,974 | |
| 4,933 | 126,568 | | | | |
| |
| Stated Capital
| Retained Earning
| Translation reserves |
| P'000 | P'000 | P'000 | | 102,899 | 18,984 || 19,461 ||| | 429 || | | (296) | | Equity | | (725) |
| (20,179)
| 18,266
| Total Changes in | | | |
Year ended 28 February 2010 Balance at 1 March 2009 Profit for the period | |
| |
| (737) | 18,247 | |-
|-
| | (4,196) | |
CONSOLIDATED CASH FLOW STATEMENT OF CHOBE HOLDINGS LIMITED | | | | | | | Feb-10 | Feb-09 | Feb-08 |
Operating Activities | | | |
Cash from/ (used in) operations Interest paid ) Income tax paid | |
| 36,241
| 28,123 | | | |
| 36,743
| 33,006
| (15,673) | 6,556
| (15,529) |
Proceeds on sale of PPE Decrease/(increase) loans to Cash paid on acquisition of minority interest |
| 169 | (2,368)
| (5,593) |
| (254) | | 2,494
| |
| |
| | | (1,914) | 1,685 | |
| (14,445) |
| (7,341)
| P'000 | P' 000 | P '000 | Dividends paid minority shareholders | (18) | (638) | (654) | | (16,997) | (6,310) |
| (17,506) | | 1,007 | | |
| 11,580
Movement in cash, cash equivalents and overdrafts | At beginning of year | 28,541 Arising through acquisition of Ker & Downey Botswana (Pty) Ltd On disposal of Kalahari Holiday Increase (Decrease) in the year Cash at year end | | | | | | 25,518 | | Tours |
| |
| 13,938 | | | |
| 2,016 | | 34 |-
| |
| (2,117)
| 26,458 | | | |
| 28,541 | | |
Represented by:
| 26,458 | | -
| 28,541 | (2) |
| 25,520
| 26,458
| 28,541
| 25,518