Financial Information for Managers

Overview of Interpretation
Week 5
Dr. Mary Nanyondo
mary.nanyondo@durham.ac.uk

Department of Accounting
Interpretation of published accounts, based on extracts
from Halfords Group plc annual report 2018

Department of Accounting
 • Introduction to the annual report
Week 5 • Introduction to the additional disclosure on the
Income Statement
Learning • Shareholders’ assessment of how their
Objectives investment is performing
• To assist the workshop 3 tasks

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 http://halfords.annualreport2018.com/
The
published https://www.halfordscompany.com/
annual investors/reports-and-accounts/
report

Department of Accounting
 • Overview, including Chairman and Chief
Executive’s statements and Highlights
• Strategic report (including an operational
Typical annual review, the Chief Financial Officer’s review and
key performance indicators)
report • Governance section
contents • Financial Statements for group and parent
company (including accounting policies & notes
to the accounts)

Department of Accounting
How would you analyse a company?

Department of Accounting
 Published
Accounts
Company
Web site
Analysing
Company
Analyse accounts Accounts
over time &
compare to competitors Read up about
Think about the sector
the industry
in which it
Contextualise
operates
 • Companies often operate through a
group structure, with the parent holding
shares in several trading subsidiaries.

Group • The published annual report will present

Accounts group financial statements and parent
financial statements separately:
• you should analyse the group accounts
(Consolidated Income Statement ,
Consolidated Statement of Financial
Position).

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Department of Accounting
Additional Disclosure on the
Income Statement

Department of Accounting
 • To make information more useful to users in their decision making,
International Accounting Standards (IAS) states that it may be
Items requiring appropriate to separately disclose particular items.

separate • These items are those within the ordinary activities of the
disclosure enterprise which are of such size, nature or incidence that their
separate disclosure is required in the financial statements in order
for the financial statements to show a true and fair view.

• Usually best to base ratios on figures before non-recurring items in

http://halfords.annualreport201 order to reveal underlying performance. The non-recurring items
8.com/financial-statements/con should then be discussed as a separate, significant feature of the
solidated-income-statement.ht company’s year.
ml

• In 2018, Halfords incurred £4.8m of non-recurring expenditure on

restructuring and legal costs (see note 5).
5. Non-recurring Items - Halfords Group plc Annual Report 2018

Department of Accounting
Some of the 2018 non-recurring costs relating to organisational
restructuring activities (note 5a)

Department of Accounting
 Some of the 2018 non-recurring costs relating to organisational
restructuring activities (note 5)

b) Costs of £0.6m were incurred in FY18 in relation to the review of the operating
model of the Autocentres business.
c) In FY18 further acquisition and investment related fees were incurred relating to
the investment in Tyres On The Drive. Prior year costs predominantly related to the
acquisition of Tredz & Wheelies.
d) The operating lease obligation in the current year related to a provision release
of £0.3m from amounts originally provided for the Group's guarantor obligations
arising from historically held lease guarantees. Prior year costs related to
rectification work to one of the Group's retail stores, which was required to make
good an area of land upon which the store is located.
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Department of Accounting

• Accounting standards also require that the results of

continuing and discontinued operations be disclosed
separately, either on a columnar basis or as a separate line.

Discontinued • Improves relevance of accounting information for decision-

operations making

• Adjustment to comparatives required, to further inform the

significance of the loss of the income stream.
Department of Accounting

Initial overview of Halford’s performance

Halford Group Highlights

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Department of Accounting

measuring the performance of a shareholding

Investor ratios
Extract from Halford’s SFP

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 • Often referred to as Equities

• The ordinary shareholders are the owners of

the company: they are the risk-takers, share of
profit after other claims been served.
Ordinary
Shares • They have full voting rights such as appointment
of directors.

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 • Nominal value: the face or par value per share,
commonly £1 or 10p. Halfords are 1p each.

Share capital • Share premium: the surplus over and above par
terminologies at which the shares were originally issued

• Market value: determined through trading on

the open market and available from the London
stock Exchange website. Constantly changing &
used in some investment ratios.
• Halford’s was £3.26 on 30/3/2018 (£3.547 on
31/3/2017).

Department of Accounting
 • Ratios computed from the perspective of
the investor i.e. through the lens of the
income return (dividend) & the capital value
of the shares held (market value).

INVESTOR • Affected by the company’s performance, its

RATIOS dividend policy & economic and market
conditions & perceptions.

• Ratios for a range of companies in which

the investor is interested may be compared.

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Department of Accounting

2018 2017
Final dividend 30/3/18 12.03p 11.68
(31/3/17)
Interim 6.0p 5.83
Dividend per share 18.03 17.51

• Scrutinised in the dividend payout ratio

• Halford’s total dividend for 2018 is 18.03 pence per share: (annual report note 8).

Dividend policy
From Halford’s Group Highlights

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Department of Accounting

Earnings attributable to ordinary shareholders

Earnings per number of ordinary shares in issue

Share (EPS) • Based on the weighted average number of ordinary shares

in issue during the year (197m)
Department of Accounting

Earnings per Share (EPS) • Total profit attributable to the ordinary

shareholders in the 52 weeks to 30/3/18
http://halfords.annualreport201 was £54.7m (£56.4m).
8.com/financial-statements/not
es-to-the-financial-statements-g
roup/9-earnings-per-share

• Calculate the EPS?

• Earnings per share (EPS) was 27.8 pence

• EPS is a measure of share performance

• Measure of company’s profitability

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Department of Accounting

• What proportion of attributable earnings

are paid out to shareholders in the form
of dividend?

• Calculated as: Dividend per share x 100

EPS

Dividend Payout • Result depends whether EPS pre or post

non-recurring items is used. For dividend
ratio per share (refer to dividends under
Segment 8.
• Based on basic EPS, calculate the Dividend
Payout ratios for 2018;2017: ???

• May also be presented as dividend cover :

EPS/dividend
• 27.8/18.03 = 1.5 times
Department of Accounting

• Relates the cash return from a share to its

current market value:

dividend per share x 100

market value per share
Dividend yield
ratio • Halford’s share price: on 30/3/18 was 326p
and on 31/3/17 was 354.7p

• Obtain the market value in pence per

share at each year end from press,
company website or LSE.
Halfords Dividend yield

2018 2017
dividend per share x 100
market value per share

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Halfords Dividend yield

2018 2017
dividend per share x 100 18.03 5.5% 17.51 4.9%
market value per share 326 354.7

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Department of Accounting

• Compares the capital value of the share to its current level

of earnings.

Price earnings Market value per share

(P/E) ratio Earnings per share

• The higher the figure the higher the market’s confidence in

the company’s future.
 Halfords P/E ratio

2018 2017

market price per share

eps

Department of Accounting
Halfords P/E ratio

2018 2017

market price per share 326 11.7 354.7 12.3

eps 27.8 28.7

Department of Accounting
Observations
2018 2017
Dividend/ Share 18.03 17.51
EPS = Earning Att. OSC/No of OSC 54.7/197 = 27.8 p 56.4/196.6=28.7 p
P/E Ratios 11.7 times 12.3 times
Dividend Payout = 64.9 % 61.0 %
Div per share/EPS
Dividend Yield 5.5 % 4.9 %

Dividend per share has risen slightly despite a fall in EPS, thereby dividend payout ratio has increased.
Dividend per share has risen year on year despite fluctuating attributable profit in recent years (see group
highlights).

PE ratio is stable but dividend yield is up, due to higher dividend & the fall in year end share price. The fall in
share price should be considered in the wider context of the market around the company year end.

Department of Accounting
Lecture 5 Recapped
Department of Accounting

• Overview of the annual report

Week 5 • Additional disclosure on the Income Statement
• Shareholders’ assessment of how their investment is
Takeaways performing
Week 6: Performance measurement in Strategic Context

DEPARTMENT OF ACCOUNTING