Operational And Industry Analysis Of Accolade Wines And Carlsberg UK

Learning Outcomes

The report will gauge into the financial performance of Accolade Wines Holdings Europe Ltd and Carlsberg UK Ltd. Accolade Wines is regarded as the top rated wine company in UK with the volume and it is regarded as the fifth major wine producing business in the world. Carlsberg UK Limited is the active company that is incorporated during 28^th August in 1903 with the registered office located in the Northamptonshire.

A comparative ratio analysis will be conducted along with the UK registered wine producing companies to further understand the operational analysis of the firm. The area of analysis would include providing an operational insight and performance by using the data from the obtained from the annual reports and share price analysis would also be conducted in the current study.

According to the reports by Market line, the European consumption of the alcoholic drinks is regarded as one of the largest in the world that accounts for 43% of the global consumption during 2015 (Messner 2016). In spite of this, the volume and sales and patter of consumption of the alcoholic drinks in that regions have are impacted by the increasing health and wellness trends with movement in the direction of higher quality products.

The health and awareness trend in the Western Europe is shaping up the influence of alcoholic drinks sector (Mas et al. 2016). Consequently, there is reduction in consumer’s alcohol intake and drinking alcoholic drinks at the moderate rate. On the negative side the consumers are being diverted towards the alternative substitutes such as non-alcoholic drinks and alcohol free lager.

A movement in the direction of premium products, particularly the alcoholic products of high quality with lower content of alcohol are predicted to grow. The alcoholic drink producers in the European region are shifting their development towards premium brand image and premium packaging since the customers are keen to pay for a higher quality and strong brand name (Callahan, Stetz and Brooks 2015). The alcoholic drinks market in the region is largely controlled by the preference of customers because of this, leading brand players are making their investment in increased marketing campaigns to promote their products and attract consumers.

Brand loyalty is regarded as the vital consumer preference in the direction of some brand influences such as new product launches and product positioning (Delmas, and Grant 2014). This provides a greater opportunity for the niche alcoholic drinks with rise in demand and if marketing is based on the quality and diversity then they can be sold at the higher rate and appeal to the Western European consumer’s requirement for healthier and premium quality alcoholic beverages.

Operational Analysis

The Western Europe drink market for alcoholic products is estimated to be around US $95.1 billion worth in respect of retail sales in 2015 with 12% fall from the preceding year. The review report obtained during 2015 represented a negative decline in the compound yearly growth rate of 2.3% (Galati et al. 2015). The market trend is regarded true in terms of total volume sales of alcoholic drinks whereas the reviewed historical data reflected that total sales volume stood 39,200 million litres (Agr.gc.ca 2018). Among the top nations in respect of retails sales and total volume of sales UK is estimated to be around $25.3 billion with 5771.8 million litres.

 

Figure 1: Historical retail value sales of Alcoholic drinks in Western Europe in US$ million

(Source: Agr.gc.ca 2018)

 

Figure 2: Figure representing top ten Alcoholic Sales in Million Litres

(Source: Agr.gc.ca 2018)

 

Figure 3: Top Ten Wine Companies

(Source: Agr.gc.ca 2018)

The value of the fine wine has increased by 20 pc over the last few years as the demand is rising with investors are looking for the new ways of diversifying their portfolios. UK alcohol production reached an all-time high of 6.3 million bottles in 2014 with a rise of 42 per cent at the back of favourable weather. Researchers have witnessed a rise in 3% gains in the developed market and 5% fall in the emerging market (Chong 2014). Considering the underlying net sales to the growth of 3% to 4% for the entire year across its portfolio results in increase in operating income of 5% to 7%. While it is noticed that Constellation Brands generates more than half of the consolidated revenue from the sale of beer that has bought more than $3.3 billion during the first nine months of operation (Golicic, Flint and Signori 2016). This is almost equivalent to robust wine and spirits portfolio that have generated $2.4 billion in terms of sales revenue.

 

Figure 4: Figure representing UK Wine Stock Market

(Source: Agr.gc.ca 2018)

The Accolade Wines Holding Europe Ltd is regarded as the world’s top wine producing company in UK in terms of volume and it is considered as the fifth largest wine company in world (Accolade-wines.com 2018). Drawing from the proud history with first wineries established in Australia and since then the company has changed into the world-wide wine corporation by making world’s some of the well-known products. Brands under the UK tags comprise Echo Falls which is the world’s third major wine product and Stowells being the top wine brand on the premises trade.

Industry Analysis

On the other hand, as the part of the UK group Carlsberg UK have over the years been brewing and selling some of the Britain’s favourite bears (Carlsberg UK 2018). Presently they include Carlsberg, Carlsberg Export and Tuborg. The company was founded during the year 1847 and it is based in Northampton United Kingdom. Carlsberg UK limited functions as the subsidiary of A/S.

Accolade Wines business models comprises of two “state of art” manufacturing, packing and delivery services that is situated in Bristol, UK, Berri and Australia (Accolade-wines.com 2018). The company has six lines of packaging with the ability of making 1200 wine bottles in each minute. The Accolade Park can pack all type of bottles ranging from glass to container.

The business model of Carlsberg comprises of global sourcing of materials (Carlsberg UK 2018). The brewing and Bottling for a large part ensures the optimal capacity use and process that are in line with central supply chain.   

Accolades Wines Holdings Europe Ltd identifies that the core to being positive alcohol company in the demanding and changing business environment is to enable business innovation to match with the deals of the consumer’s requirements (Mozell and Thach 2014). During the year company the company has devoted around $20 million on improving the winemaking, packing and delivery processes in United Kingdom.

 

Figure 5: Figure Representing Operations of Accolades Wines Holdings Europe Ltd

(Source: Accolade-wines.com 2018)

Gross Profit:

Gross profit margin can be defined as the financial metric that is used to determine the organizations financial health and business (Scott 2015).

• The gross margin for Accolade Wines Holdings during the year 2013 stood 8.88 representing a strong rising trend in the later years as the gross profit margin for the company in 2016 stood astonishingly 24.29.
• The gross profit margin for Carlsberg UK Ltd is stood strong over the years as in 2014 the company reported gross profit margin of 33.26 which stood strong in 2016 to 35.70.
• The gross profit margin for both company can be considered favourable with respect to industry standard of 25%.

 

Figure 6: Gross Profit Margin

(Source: As Created by Author)

Net profit Margin:

According to Schaltegger and Burritt (2017) Net profit margin represents the left over revenue following the deductions of all the expenses from sales.

 

Figure 7: Net Profit Margin

(Source: As Created by Author)

• Accolade Wines Holdings posted a net profit margin of 3.92 during 2013 which subsequently increased to 5.27 in 2014. The net profit margin for the company grew stronger in 2016 as the profit margin stood 30.46.
• The net profit margin for Carlsberg in 2013 stood 1.14 which subsequently fell negatively to -5.62 in 2014. The ratio gain strength in 2015 to stand 3.29 which again fell negatively to -2.27.

Operating Return on Equity:

As stated by Warren and Jones (2018) operating return on equity signifies the amount of net income derived from the shareholder’s equity ().

 

Figure 8: Operating Return on Equity

(Source: As Created by Author)

• The operating return on equity for Accolade Wines Holdings Europe Ltd remained stable in 2013 and 2014 with the ratio standing 100. While in 2015 it fell to 59 and stood 101 in 2016.
• The Carlsberg UK Ltd operating return on equity has represented a tumultuous trend with the ratio standing 19 and -10 in 2016.

According to Robson, Young and Power (2017) the return on capital employed is referred as the fiscal ratio which determines the effectiveness of the company and efficiency through which the capital employed.

 

Figure 9: Return on Capital Employed

(Source: As Created by Author)

• The return on equity for Accolade Wines stood 24.96 in the year 2013 which later represented a rising trend from 2014 thereon as the ratio astonishingly stood 74 representing a better profitability from the efficiency of capital employed.
• Carlsberg reported return on capital employed stood 7 in 2013 which stood negatively in 2014 to -15. Though it gained in 2015 but stood negative in 2016 to -4.

Quick Ratio:

The quick ratio is largely used to provide the idea of whether the company has the ability of paying its debt back through its assets (Henderson et al. 2015).

• The quick ratio for Accolade Wines Holding stood negatively over the four-year span as the ratio stood negatively in 2013 to -88 and in the year figure fell to -114.
• Carlsberg on the other hand reported a Quick Ratio of -43 in 2013 which further declined in 2016 to stand negatively at -145.

Company Overview

 

Figure 10: Quick Ratio

(Source: As Created by Author)

Debt Equity Ratio:

As stated by Otley (2016) debt equity ratio is the fiscal ratio that specifies the comparative amount of equity of shareholder and the sum of debt employed to fund the assets of company.

 

Figure 11: Debt Equity Ratio

(Source: As Created by Author)

• For Accolade Wines Holdings the debt to equity ratio represented a declining trend over the four-year span as the ratio stood negatively in 2013 at -239 and in 2016 the ratio stood -39.
• Carlsberg further reported a declining trend of debt equity ratio at -434 in 2013 and continued to remain negative in 2016 as the ratio stood -162.
• This represents that both the company have undertaken higher amount of debt to finance its assets.

Operating leverage:

The operating leverage represents the measure of the degree to which an organization incurs the combination of fixed and variable costs (Eldenburg et al. 2016).

• The operating leverage for Accolade Wines Holdings represented a stable trend as in 2013 it stood 0.24 and has remained stable in the later years with the ratio standing 0.24 in 2016.
• Carlsberg reported a relatively tumultuous trend in operating leverage as in 2013 it stood 0.59 however declined to 0.44 in 2014. The ratio stood as low as 0.38 in 2016 representing that the company incurs higher proportion of variable costs than the fixed costs.

Asset Turnover:

The asset turnover ratio represents the efficiency to measure the organizations capacity to derive sales from its assets by associating the net sales with the average amount of total assets (Otley 2016).

 

Figure 12: Asset turnover ratio

(Source: As Created by Author)

• Accolade Wines Holding reported a declining trend in its Asset Turnover as the ratio stood 6.37. Though it increased to 7.94 in 2014 but declined continued a declining trend in 2015 and 2016 with ratio standing 4.68 and 2.44 respectively.
• Carlsberg reported a declining trend of ratio in 2013 as the ratio stood 6.51 in 2013 which significantly declined in 2014 to 2.75 and in 2016 the ratio stood 1.74.
• This represents both the firm has inferior ability of generating sales from its assets.

Inventory Turnover:

The inventory turnover ratio is regarded as the ratio of efficiency that represents how the company is effectively using its inventory in respect to cost of goods sold and average inventory period (Henderson et al. 2015).

 

Figure 13: Inventory turnover Ratio

(Source: As Created by Author)

• The inventory turnover for the Accolade Wines Holding in 2013 stood 11 which improved in the following years of 2015 and 2016 to stand at 11 and 6 respectively. This represents the Accolade Wines Holding has better inventory turnover period.
• Carlsberg UK ltd reported a higher inventory turnover. The ratio stood 18 in 2013 and increased significantly to 9,146 in 2015.

Debt Collection Period:   

The debt collection period represents the number of days a company takes to collected the debt from its customers (Schaltegger and Burritt 2017).

 

Figure 14: Debt collection period

(Source: As Created by Author)

• The debt collection period for Accolade Wines Holding Ltd somewhat represented a tumultuous trend as the ratio stood 2306 in 2013 and fell to 1638 in 2016.
• Carlsberg UK Ltd reported a higher debt collection period of 6632 in 2013 nevertheless in the succeeding years the debt collection period fell to 4103.

Trade Payment Period:

The trade payment period represents the number of days a company takes to pay its creditors (Warren and Jones 2018).

• Accolade Wines Holding reported a negative trade payment period as the ratio stood -8845 in 2013 whereas in the ratio stood lower but was negative in -2751 in 2016. The company takes higher amount of time to pay off its trade creditors.
• Carlsberg UK also reported a negative trade payment period of -2353 in 2013 and subsequently stood more negatively in 2016 to -6734.

 

     Figure 15: Trade payment period

(Source: As Created by Author)

Diluted Earnings Per Share (EPS):

The diluted earnings per represents the profit that is derived per share together with common stock equivalents (Scott 2015).

• The diluted earnings per share for Accolade Wines Holding stood 333 in 2013 and increased immensely to 107,335.
• Carlsberg reported diluted EPS in 2013 at 51 while in 2016 it stood -6.

Price Earnings Ratio:

The price earnings ratio represented the level of earnings that is derived per share relative to the share price.

• Carlsberg reported a price earnings ratio of 11 in 2013 which subsequently declined to -4 though it gained in 2015 to 26 but stood negatively in 2016 to -102.

 

Figure 16: Price earnings ratio

(Source: As Created by Author)

The share price and performance for Carlsberg has reflected a fall in the price of shares since the data obtained represents the company reported a negative earnings per share and price earnings (Scott 2015).

Conclusion: 

As evident from the comparative analysis it is observed that the company has incurred a better gross margin but has poor terms of liquidity as the liquidity ratio stood negatively for the Accolade Wines Holdings Europe Ltd. Additionally, the company reported negative asset turnover ratio and diluted earnings per share. The analysis states that Accolades Holdings is not better for short term investment whereas investing Carlsberg may yield investors with returns in long term investment.

References:

Accolade-wines.com. (2018). Production | Accolade Wines. [online] Available at: https://www.accolade-wines.com/our-company/production/ [Accessed 5 Apr. 2018].

Agr.gc.ca. (2018). Sector Trend Analysis – Wine, Beer and Spirits in Western Europe – Agriculture and Agri-Food Canada (AAFC). [online] Available at: https://www.agr.gc.ca/eng/industry-markets-and-trade/international-agri-food-market-intelligence/europe/market-intelligence/sector-trend-analysis-wine-beer-and-spirits-in-western-europe/?id=1481742289859#d [Accessed 5 Apr. 2018].

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Carlsberg UK. (2018). Carlsberg UK. [online] Available at: https://carlsberguk.co.uk/ [Accessed 5 Apr. 2018].

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