By: William Heanue
Business 1: Woolworths Group Ltd. _____________________________________________
Business Name: Woolworths Group Ltd ASX Code: WOW
Woolworths was founded in the 1920’s and has expanded all through out Australia. It’s main primary activity is Supermarket retail but has other subsidiary companies including: BIGW, Caltex, BWS (Beer, Wine & Spirits) and Dan Murphy’s just to name the large companies. Woolworths has over 110,000 Employees and nearly 1305 million shareholders invested in their company. The business structure of Woolworths is a public listed company meaning it has limited liability and can have unlimited amount of shareholders on the Australian Stock Exchange (ASX). This type of business makes Woolworths Group limited a seperate legal entity giving it perpetuity.
Woolworths has the main objective is to increase shareholder value and “To deliver the best in convenience, value and quality for our customers.” Five key priorities have been made to achieve these objectives, they are:
1.) Customer and store-led culture and team.
2.) Generating sustainable performance in food.
3.) Evolving our drinks business.
4.) Empowering our portfolio business.
5.) Becoming a lean retailer through end-to-end process and systems excellence.
Customers: Customers at Woolworths and other subsidiary retail stores are average consumers buying goods and services.
Shareholders: Those invested in Woolworths Group who own part of the company through the purchase of shares.Woolworths has 445,000 Shareholders with the majority being ‘Australian mum and dad investors’.
Rivals: Woolworths Supermarkets have multiple rivals with the most known competitors being Coles and Aldi. Also Woolworths Group’s subsidiary companies have their own competitors such as Big W’s (Department retail) rival with Target and K-mart and the rivalry between BWS (Liquor) and Liquorland.
Community: Woolworths community has expanded throughout both Australia and New
Zealand. They have committed to many partnerships and programs such as ‘Free fruit for Kids’ and ‘Earn and Learn’.
Government: The Woolworths Group have to abide to laws of Australia and New Zealand and meet regulations in regard to selling and their suppliers.
Suppliers: Woolworths tries to have maintain food supplies from local farms to ensure
ethically produced goods and support the farming industry. Therefore Woolworths has many suppliers for example small farms like Borderland, Castello, Dolling produce farms and e.t.c.
Union: The SDA (Shop, Distributive and Allied Employees’ Association.) Union looks after the employees fighting for good working conditions and a fair wage.
Employees: Employees are the people who are paid by employers for work. In the cases of woolworths supermarket employees are the people completing daily operations such as working at a cash register or stacking shelves.
A issue which Woolworths would have to handle is the conflicting interests of customers and their shareholders as customers want to have the cheapest price for their goods and services while the shareholders want these prices increased to repay dividends to gain a profit. This puts Woolworths in the dilemma of lowering prices to draw in more customers and gain profit or increasing prices to satisfy and increase shareholders which also increases profit. In this scenario they are more likely to lower prices because as stated they wish “To deliver the best in convenience … for our customers” and it would also create a greater profit with more customers, raising profit and market share.
Currently (21/01/18) the price of one share is $27.09 which is larger than the sector average of $18.90, indicating a strong market share value. The return on assets and equity for June 2017 is 6.90% and 14.93% respectively, this is a decreased value from the last reporting period which shows a decrease in profitability of the company. This however may have changed as since then market share has increase which may in turn have increased the profit of the company. As seen in the graph below the market share of the business was stable until a sudden boom in 2013, this remained so until 2015 when the share value dropped rapidly with the introduction of a rival supermarket, Aldi. Since then the price per share has slowly but steadily increased. This increase may have occurred as Woolworths were more observant of their objectives and put customers first, raising profit.
Key Performance Indicators (KPI’s):
Woolworths has had a good financial year (2017), this performance allows them to try and achieve their business objectives. They have worked towards improving:
1.) ‘Customer and store-led culture and team’: Safety standards have been increased and the total
recordable injury frequency rate has decreased 19% at a rating of 12.97. Also team
engagement has increased to 82% which leads to an increase of the customer service at
stores. These statistics prove that the culture and team has increased increasing the
“convenience … for our customers”
2.) ‘Generating sustainable performance in food’: With the combined food sales of Australia and
New Zealand being $42.6 Billion Woolworths opened more stores including Woolworths Metro
(Located in the city for customer convenience) and 91 renewal stores. This allows for financial
performance to be maintained improving market share and therefore shareholder value.
3.) ‘Evolving Our Drinks Business’: Dan Murphy’s had 2.4 Million members in 2017 and a online
click and collect system was set up for over 1200 BWS stores increasing convenience for the
4.) ‘Empowering our portfolio business’: Big W has been given a ‘turnaround plan’ thats puts the
customer at the core of the business. Also Hotel sales have increased 2.7% since 2016
meaning that more profit is made and shareholder value is increased.
5.) ‘Becoming a lean retailer through end-to-end process and systems excellence’: Woolworths
Group has opened 1STORE and a supply chain’s have expanded.
Corporate Social Responsibility (CSR):
Woolworths believes that the business is large enough to have a real impact on fundamental social corporate responsibilities including encouraging diversity and creating a healthy Australia. To handle this Woolworths Group has separated their responsibilities into three groups; People, Planet and Prosperity. People, looks at the diversity, this is achieved with 40% of the senior management team being women, treated equally with no wage gap and the same training standards, as well as promoting the inclusion of the indigenous culture in the workplace. Planet looks at their impact on the environment and how to reduce it, the company has been moving towards zero food waste going to landfills whilst also recycling, importing raw materials from local, ethical sources and attempting to reduce carbon emissions 10% from 2015. Prosperity is about the relationships between company and community, In the last three years, 1% of their earnings before interest and tax (28 million) has been put into community programs and partnerships, such as ‘earn and learn’ and ‘free fruit for kids’. Woolworths continues to develop strategies to reduce their responsibilities.
The article ‘Woolworths Limited vs. Wesfarmers Ltd: Which is the better buy?’ (Refer to first link in Bibliography) compares Woolworths and Wesfarmers and their financial performance. At the time of this article in 2016 Woolworths share value had fallen to its all time lowest. This has changed in recent years but even when their market share value dropped 23% Woolworths tried to provide a quality product for the best value and with the easiest convenience.
Business 2: QANTAS Ltd.________________________________________________________
Name of Business: Qantas Airways Ltd ASX Code: QAN
Overview of Business:
Qantas is the world’s second oldest airline, it was initially founded in Queensland in 1920 and was originally registered as the Queensland and Northern Territory Aerial Services Limited (QANTAS). It has now grown to become Australia’s largest domestic and international airline. The Qantas Group’s main business is the transportation of customers using its two airline brands – Qantas and Jetstar.
Qantas is widely regarded as the world’s leading long distance airline and one of the strongest brands in Australia. They have built a reputation for excellence in safety, operational reliability, engineering, maintenance, and customer service.
Qantas Airways Limited (QAN) has 1745 million shares issued on the Australian Stock Exchange and over 33,000 employees and approximately 93 percent of these employees are based in Australia.
The Qantas Group has developed a financial framework which supports its objectives of
creating shareholder value, maintaining an optimal capital structure, and disciplined capital allocation.
These objectives are supported by measurable targets, these are:
1.) Maintaining earnings per share growth over the cycle
2.) To deliver total shareholder returns (TSR) in the top quartile in:
Of global listed airlines.
Diagram 1 – Business Objectives (Reference 1)
Qantas has identified a range of key stakeholders in it business’s and has developed policies, procedures and standards around the engagement and participation of these stakeholders. The stakeholders are:
Shareholders: Qantas has 1745 million shares registered on the ASX. It has established
processes to ensure that it complies with its disclosure obligations under the ASX
Listing Rules. In addition, Qantas endorses the ASX Principles and is committed
to effective communication with shareholders and the effective participation of
shareholders at Qantas Annual General Meetings (AGMs).
Customers: Qantas philosophy is that customers are the core of everything they do. The
Qantas Group engages with its customers through the Customer Satisfaction
and Net Promoter Score processes – to measure performance in the
eyes of the customers.
Governments: The Qantas Group promotes a collaborative relationship with Government
while complying with all laws and upholding the highest ethical standards This
includes complying and reporting to regulatory authorities.
Suppliers: Effective and efficient supplier relationships are vital to the success of Qantas.
Qantas Procurement actively manages relationships with many of its key
suppliers through its Supplier Relationship Management program.
Community: Qantas is committed to engaging with and being a responsible member of local
communities. It’s philanthropic activities and partnerships are detailed in the
Corporate Social Responsibility section below. In addition to this community
work, Qantas is a key participant in community meetings around Australia in
relation to noise improvement issues.
Union: The Qantas Group consults and negotiates with a large number of trade
unions. There are 49 collective agreements in place with employees and
unions across the company.
Employees: The Qantas Group employs more than 33,000 employees, with 93% of
employees located in Australia.
Key Performance Indicators (KPI’s):
(1) Creating Shareholder Value:
Since June of 2011 QAN has been decreasing in share value, falling far below the sector average. In June of 2014 the price of a share fell to $1.03 while the sector (transportation) average was at $4.40. Now (21/01/18) this gap has been closed with the current share value being $5.20 and the average at $5.90.
(2) Maintaining Optimal Capital Structure
Net Debt Levels
(3) Disciplined Capital Allocation
Airlines are often referred to as an unstable investment with market share value changing all the time, in the case of Qantas this is true, looking at the trend in share value on the graph below it can be seen that Qantas has had both economic boom and busts. For example the profitability fluctuates heavily. The return on assets for June 2013 was 2.13% and in only three years this increased to 8.90%. This sudden increase in market share can be attributed to the sale of Terminal 3 at Sydney airport, allowing other airlines to use and access it.
Corporate Social Responsibility (CRS):
The Qantas Group has a commitment to strengthen the communities in which they operate and work by building relationships and partnerships that benefit all.
Qantas manages its community activities under the banner of “Sharing the Spirit”, a series of partnerships, programs and initiatives designed to help Australians connect with their heroes, their loved ones and their dreams.
It has developed the Qantas Foundation which has two key areas of focus:
Initiatives that provide an immediate experience for those in need (changing lives)
Experiences and opportunities that empower the next generation of Australians to make a difference in the community (empowering change)
Some of its programs include:
1.) Outward and Upwards: A course that give young community leaders from disadvantaged high schools a opportunity to experience a high quality leadership development program, featuring intensive residential training and corporate mentoring support over a sustained period.
2.) The Qantas Foundation Encouragement of Australian Art Award: This recognises emerging Australian contemporary artists and aims to increase awareness of Australian contemporary art and incentivises promising, emerging artists to produce further work.
Qantas also focuses it social corporate responsibility activities around their impact to the environment. In 2010 fuel efficiency was improved by 1.5% per annum. They also plan to reduce their use of water by 20% by 2020 and decrease waste-to-landfill by 30% and a 35% reduction in electricity by 2030. Qantas estimates that it can cut back 50% in fuel emissions compared to the 2005 levels by 2050.
The article ‘The five reasons Qantas is back in the black’ looks at why there was such a rapid increase in share value in 2015. The article gives five reasons for the sudden influx narrowing it down firstly cutting costs therefore reducing the profit margin (less expenses result in a larger profit) benefitting long time shareholders. Secondly the lower oil price and the end of the carbon tax allowed again for expense to be reduced improving shareholders stance. Thirdly depreciation costs were low, this meant that their airline fleet held more value, boosting the appeal and value of the company. Fourthly the end of domestic capacity war drew in more passengers/customers and lastly the their was less international competition as rival companies rate of growth was decreasing, allowing space for Qantas to increase, with this the market share value of the company increased. Qantas met it’s objective to enhance shareholder value, this article shows the course Qantas took to increase this value in 2015 so that shareholders share value is enhanced.
Business 3: Commonwealth Bank of Australia.
Name of Business: Commonwealth Bank of Australia ASX: CBA
The Commonwealth Bank of Australia is an retail bank starting on the 22nd of December 1911 and based in Australia but also works in New Zealand and the Asian Pacific region. It also operates in other countries including United Kingdom and USA. The Commonwealth Bank of Australia is a public limited company with 1753 million shares issued on the ASX. Also there employee workforce is 45,129 as of 2016. CBA also has subsidiary companies is CommInsure, ASB Bank, Colonial First State, Sovereign limited and BankWest.
with the aim to keep their “customers … number one priority.”
Customers: The people who do their everyday banking at Commonwealth bank of
Australia engaging in activities such as creating a bank account, receiving a loan and withdrawing/depositing money.
Key Performance Indicators (KPI’s):
Corporate Social Responsibilities (CSR):
CBA’s corporate social responsibility plan is focused on supporting the community, environmental stewardship, improving customer experience and improving the workplace. They wish to create a positive change in innovation, education and making a good business practice. There are seven parts to this plan ensuring a reliable and quality commitment to their responsibilities.
The price of a singular share currently (28/01/18) being $79.19. Since 2009 CBA has maintained its share value far above the sector (financial services) average. While the trading volume is falling, share value is increasing meaning that CBA is generating more profit while selling less shares meaning that they are less dependent on share revenue.
‘Commonwealth Bank shared have taken a dive amid money laundering breaches’ published on the 20th of December 2017 looks at the reason behind the decline in share value.
Motley Fool Australia, 2017) Your Bibliography: Motley Fool Australia. (2017). Woolworths Limited vs. Wesfarmers Ltd: Which is the better buy?. online Available at: https://www.fool.com.au/2016/05/03/woolworths-limited-vs-wesfarmers-ltd-which-is-the-better-buy-2/ Accessed 20 Jan. 2018.
InvestSMART. (2018). Woolworths Group Limited. online Available at: https://www.investsmart.com.au/shares/asx-wow/woolworths-group-limited Accessed 18 Jan. 2018.
Freed, J. (2018). Why Qantas is back in the black. online The Sydney Morning Herald. Available at: http://www.smh.com.au/business/aviation/the-five-reasons-qantas-is-back-in-the-black-20150224-13nbws.html Accessed 22 Jan. 2018
InvestSMART. (2018). Qantas Airways Limited. online Available at: https://www.investsmart.com.au/shares/asx-qan/qantas-airways-limited Accessed 22 Jan. 2018
NewsComAu. (2018). CBA shares have taken a dive at the start of trade amid news of fresh allegations against the bank giant.. online Available at: http://www.news.com.au/finance/business/banking/commonwealth-bank-shared-have-taken-a-dive-amid-money-laundering-breaches/news-story/3263f8b81c75cb0b17d08b0f01e38732 Accessed 23 Jan. 2018.
InvestSMART. (2018). Commonwealth Bank of Australia. online Available at: https://www.investsmart.com.au/shares/asx-cba/commonwealth-bank-of-australia Accessed 22 Jan. 2018.