Telecity Group Plc Financal Statement Analysis

Submitted in fulfillment of assignment 1 of Financial and precaution Accounting course Telecity conference plc Background Founded in 1998 with the establishing of the first information focus on in Manchester, Telecity mathematical group plc is run a carrier-neutral info center field in Europe to support digital thrift. It is a combination of TeleCity peculiar(a), Redbus Interhouse Limited and Globix Holdings (UK) Limited. As a leading provider of data centre operate, Telecity theme plc is listed in London Stock Exchange.In the meanwhile, it is is a constituent of the FTSE 250, FTSE techMARK 100 and FTSE4 dear(p) indices. Driven by the rapidly increasing of digital economy, Telecity congregation has been targeting to score secure, resilient and elevatedly-connected colocation environments for the IT and telecoms equipment, to which customers stern outsource their telecoms, web and IT infrastructures. For this purpose, Telecity Goup has launched the demand-driven dat a elaborateness programme, which is expanding its data center capacity by means of Europe.This European- groundd programme is expected to increase customer power capacity, which depart in turn bust alliance stinting of scale. Furthermore, as an Information Technology Company, Telecity Group has been loftyly relying on high and rude(a) technology to attract new customers and increase profits. Thus, much parkway has been put into orders ability to innovate new products and run in toll of data accessibility, security and specialty. Focusing on evaluating the executing of its gain strategy, this paper will analyse it is monetary statement base on the basic financial ratios.Ratios Analysis Introduction This section will evaluate Telecity Group plcs financial ratios in detail. Other than looking at the past and present performance trends of the Group, this essay will to a fault disc everywhere the companys financial performance in equation to Datacenter assiduity oerall . Consequently, company management team will be competent to determine the short term forecast of future performance. Furthermore, the analysis in this section nominate give guidance to investors by providing data and braggart(a) realistic view of Telecity Groups inancial position and comparison to the industry. positiveness Ratios Given the cardinal role profit plays as support twain dividends to sh atomic number 18holders and retained earnings, it is the important beat of financial performance. Figure 1 favour sufficientness Ratios (GPM- Gross profit security deposit, OPM- Operational profit margin) As can be seen from figure 2, the gross profit was dramatically increase from 52% to 56 % through twelvemonth 2010, and on that point was impressively improvement for year 2011.This can be explained by companys successfully implementation of its emergence strategy. On one side, driven by the high demanding of digital economy, the company has been focusing on increasing ear nings by expanding data centre capacity and adopting new technology. On the other hand, along with the growth there is high cost. However, the even higher(prenominal) revenue growth still make the growth of gross profit margin. Operation profit was somewhat moderate in year 2011, which implies high administrative costs in 2011. This is in the first place because of a total pith of ? ,510,000 provisions respect of certain leases and the accomplishment with Data Electronics and UK Grid, the costs of which were accounted in operational exceptional items in unify income statement. Figure 2 advantageousness Ratios (PreTPM- Pre- tax profit margin, PostTPM- Post-tax profit margin) The pre-tax profit margin has also significantly improved from virtually 23. 5 % to about 25 % in 2011. One of reasons of this improvement is the gains on foreign exchange. The most important reason should be the write off of costs incurred on refinancing, which was an ? 00m five-year financing agreement with Barclays, HSBC, Lloyds Banking Group and RBS from last year. Unlike PreTMP, post-tax profit margin has dropped impressively to about 17. 6 %. This may be mainly because of the dramatically increment in both current tax and deferred tax. Figure 3 do goodability Ratios (ROCE- Returns on capital occupied, ROE- Returns on equity) Figure 3 shows that The Telecity Groups average ROE is comparable to industry ratio which is 7. 1% up to year 2010. However, in terms of growth, the trend is dramatically going scratch off from 2009, which is despite the fact that both total equity and profit aft(prenominal) tax defend been improved.However, the growth of profit was not in footfall with the equity. In fact, this makes sense when take into account the companys elaboration strategy, which has been being successfully implemented by setting up new data centres across Europe. A big property has been invested in this refinement program, which in turn provided the company high potential turn-over. In general, financial analysts consider return on equity ratios in the 15-20% range as representing attractive levels of investment quality. In this sense, the companys performance is rosy with regards to efficiency of profitability.ROCE is one of Telecity Group key performance indicator, which is added to evaluate companys strategy of focusing earnings return from investment. ROCE was decreased during year 2011, which was due to the companys capacity expansion programme and accomplishments effect. level off though, the companys performance in terms of generating returns is healthy in comparison with industry average rate at about 8%. liquid Rations Liquidity ratios are to measure a companys ability to kick in off its short-term financial obligations (Atrill and McLaney, 2011).Figure 4 Liquidity Ratios In theory, the higher current ratio is better as it clearly identifies the companys ability to pay off short debts fund its on-going operations. (Investpedia, 2009) I n the reference of Telecity Group, its average current ratio shows that the current assets are not able to privateness its current liabilities. This is mainly because the company has invested a big money into companys capacity expansion program and acquisition, which are holding most of companys capital. However, the average rate is comparable to the industry as a whole at 0. 8. apportion receivable eld are healthy between 25 and 40 old age over the year from 2009 to 2011, there is even a decrease from 40 days to 35 days in year 2011. This is due to the demanding digital economy market. Financial geartrain Financial gearing happens when business is financed in a way of borrowing (Atrill and McLaney, 2011). The analysis of gearing ratios is to evaluate the businesss level of gearing, which is the key factor of assessing luck. Figure 5 Gearing Rations (D/E- Debts to equity, ND/E- take in debt to equity)Figure 5 shows that gross debt to equity has increased from about 30% to over 60% in year 2011 later on a slightly decreasing in year 2010, which indicates Telecity Group is highly geared in 2011. This is because the significantly increase of non-current borrowing for companys capacity expansion program and the two acquisitions. Net debt to equity is implicated with company bullion to repay the borrowings. It has impressively increased to more than 60% as healthful demonstrating that risk exists at Telecity Groups failure. Figure 6 Gearing Ratios (IC- rice beer covre, NIC- Net interest cover) Interest cover ratio measures the amount of operating profit available to cover interest payable(Atrill and McLaney, 2011). As can be seen from figure 6, gross interest cover has fallen from 11 % to 10. 4 % in 2011. In terms of net interest cover which takes into account finance income, the cover ratios were slightly increased. Overall, the figures are showing that Telecity Group has the strong ability to service its debt. Cash flow analysis CFPS is concerned with the company ability of generating cash. Therefore, it is commonly referred by analysts for more accurate measure of a companys financial situation.Figure 7 Cash flow ratios (EPS- Earnings per conduct) The CFPS has increased from 37 pence in 2009 to 60 pence in 2011. The EPS is averagely higher then CFPS as we would commonly expected. Both EPS and CFPS have increased over the two years. The main reasons for the increase and the difference between CFPS and EP as follows 1. Movement in outsider exchange 2. Movement in deal out receivables and trade payables 3. Depreciation efflorescence 4. Cost of exceptional items To sum up, the net cash flow from operating activities has significantly improved by 25 % to over ? 120 billion. Over ? 00 million was spent on investment activities, which include capacity expansion program and acquisition activities. Investment analysis Investment ratios are designed to admirer shareholder to assess the returns on their investment (Atrill and McLaney , 2011). Earnings per share have risen from 19p to 21p in 2011, which is basically because of the increasing profit margin over the year. Conclusion As can be seen from above, the Telecity Group plc has gone through a stable healthy financial year with regards the implementation of its growth strategy. Telecity Groups profitability stayed stable and healthy in the near two years.The low profit increment was due to the companys expansion and acquisition strategy. Given the fact that data centre services is demanding in digital economy, Teleicty Groups successfully expansion and acquisition will in turn make big returns. Liquidity is piteous in terms of ability to cover its current liabilities. However, given the industry ratio being 0. 58, it is comparable healthy in the market. Furthermore, the short trade receivable days imply the high market demands in the data centre industry. Companys gearing has risen to extremely high level due to its growth strategy.From investors perspectiv e, there would be risk of investing in the case of companys failure. However, take into the status of the characters of data centre industry, which are demanding the high capacity, connectivity and flexible services, Telecity group are in no way to failure as it has achieved successful implementation of its business across Europe and gained the potential of attracting new contract with exiting as well as new customers. Overall, the Telecity has been seeking the best practise within the data centre industry as a leading provider of premium carrier-neutral data centres.As the result of its successful capacity expansion and acquisitions, the push high turnover is inevitably. Appendix 1 dineroability Gross Profit Margin = Gross Profit/Revenue% ? ? 2009 = 88,727 / 169,383 % = 52. 4% 2010 = 109,773 / 196,397 % = 55. 9% 2011 = 134,701 / 239,818 % = 56. 2% ? Operating Profit Margin = Operating profit/Revenue% ? 2009 ? 39,102 / 169,383 % = 23. 1% 2010 = 55,173 / 196,397 % = 28. 1% 2 011 = 65,359 / 239,818 % = 27. 3% ? Pre-tax profit Margin = Profit before tax/Revenue% ? ? 2009 = 38120 / 169,383 % = 22. % 2010 = 45,941 / 196,397 % = 23. 4% 2011 = 59,438 / 239,818 % = 24. 8% ? ? ? ? ? ? ? ? Post-tax profit Margin = Profit after tax/Revenue%? ? 2009 = 34722 / 169,383 % = 20. 5% 2010 = 38,031 / 196,397 % = 19. 4% 2011 = 42,641 / 239,818 % = 17. 8% ?? Return on Capital Employed = Operating Profit/Total Capital employed ? ? 2009 = 39,102 / (80,467+218,931) % = 13. 1% 2010 = 55,173 / (80654+257,545) % = 16. 3% 2011 = 65,359 / (183,451+298,027) % = 13. 6% Return on Equity = Profit after Tax / Equity % ? ? 2009 = 34722 / 218,931 % = 15. 9% 2010 = 38,031 / 257,545 % = 14. 8% 2011 = 42,641 / 298,027 % = 14. 3% Liquidity Current Ratio = current Assets/Current Liabilities?? 2009 = 51,623 / 82,961 = 0. 6 ? ? 2010 = 46,501 / 82,474 = 0. 6 ? ? 2011 = 48,398 / 103,283 = 0. 5 ? ? ? Trade payable days = Trade payables/Cost of Revenue*365 2009 = 47,089 / 80,656 * 365 = 213days 2010 = 47,085 / 86,624 * 365 = 198days 2011 = 57,935 / 105,117 * 365 = 201days ? Trade receivable days = Trade receivable /Revenue? 009 = (19,483-6,975) / 169,383 * 365 = 27days 2010 = (22,139-746) / 196,397 * 365 = 40days 2011 = (26,365-3,560) / 239,818 * 365 = 35days Gearing Debt to equity = Non-current borrowings/Equity% 2009 = 80,467 / 218,931 % = 36. 8% 2010 = 80,654 / 257,545 % = 31. 3% 2011 = 183,451 / 298,027 % = 61. 6% ? Net debt to equity = Borrowings little cash/Total Equity%? 2009 = (80,467-32,140) / 218,931 % = 22. 1% 2010 = (80,654-24,362) / 257,545 % = 21. 9% 2011 = (183,451-22,033) / 298,027 % = 54. 2% Interest Cover = Operating profit/Interest expense ? 2009 = 39,102 / 3788 = 10. 3 ? 2010 = 55,173 / 5,017 = 11 ? 2011 = 65,359 / 6,300 = 10. 4 ? ? ? ? ? ? ? ? ? Net Interest cover = Operating profit/Net Interest expense *Net interest expense=Finance expense-interest? 2009 = 39,102 / (3788-117) = 10. 7 ? 2010 = 55,173 / (5017-11) = 11. 0 ? 2011 ? 65,359 / (6300-103) = 10. 5 ? Cash Flow Cash flow per share = Net cash flow from operating activities/Number of equity share issued 2009 = 74,017 / 198,092 = 0. 37365 = 37. 4p 2010 = 96,380 / 198,092 = 0. 86542 = 48. 7p 2011 = 120,554 / 198,892 = 0. 606128 = 60. 6p Investment Earnings Per Share ? ? 2010 = 19. 0p 2011 = 21. 1p References Atrill, P. and McLaney,P. (2011) Accounting and Finance for Non-Specialists. 7th. ed. Essex Pearson Education Limited. Telecity Group plc Annual report and accounts 2011 Data centres at the heart of the digital economy, 2011 TelecityGroup. Telecity Group plc Annual report and accounts 2010 Data centres at the heart of the digital economy, 2010 TelecityGroup. http//www. investopedia. com/terms/c/currentratio. asp, Investopedia.