Introduction • Who we are • Purpose of this workshop
Introduction • Who we are • Purpose of this workshop • Aims for this workshop Do not fall asleep! Learn something Take fear / complexity away from finance jargon Audience participation, have fun and win something!
Today’s Running Order TSC Money Merry Go Round • • Key Financial Terms to Demystify – Exploring the method behind the mystery – Why and who are they important to • Budgets and Forecasts – The accountancy cycle • TSC Money Merry Go Round In Real Life • Market Challenges, Future Financial Trends and Resulting Actions • Quiz
Share of the Profits Increase Sales CAPEX & Profit Investment TSC Money Merry Go Open new stores and Community Round funeral Investment branches Share Capital Investment Sell products = and services Trading Profit Pay Overheads
Financial Terms To Demystify Depreciation & Amortisation Overheads Gross Margin
Like for Like (L4L) What is it? An analysis of our performance (usually sales) one year to the next. Comparing stores/branches open throughout both years. Usually expressed as a %. Why is it important? Shows us whether our core business is growing or shrinking year on year Previous Year Current Year Store has performed consistently Store has had a reduction in sales Store has had growth in sales X X Stores have opened this year so do not X contribute towards LFL position Store closed so does not contribute towards LFL position
Financial Terms To Demystify Gross Margin
Gross Profit / Gross Margin What is it? Measures initial profitability. Calculated as sales less the cost of products sold, then divided by sales Why is it important? Indicates whether our business is buying and selling at the best price. Sufficient margin needs to be made to cover overheads. What we sell What the Gross Profit Gross Margin the product for product costs us £10 £7 - £3 = 30% or
Financial Terms To Demystify Overheads Gross Margin
Overheads What is it? Collective term to describe the cost of running a business. - Excludes cost of buying the product to be sold - Examples; Wages and salaries, occupancy costs, repairs and maintenance and legal and professional costs Why is it important? Overheads need to be controlled in order to ensure overall profitability
Financial Terms To Demystify Overheads Gross Margin
Trading Profit / Operating Profit What is it? Measures the trading/operational profitability of our business and is calculated: Sales less all costs/ overheads (except interest, tax & distributions) Why is it important? We need sufficient trading profit to: - Sustain the business - Pay Share of the Profits - Reinvest for the future - Build for years to come £100,000 £70,000 £30,000 £21,000 £9,000 - - = = Cost of Gross Trading Sales Overheads Sales Margin Profit
Financial Terms To Demystify Overheads Gross Margin
CAPEX CAP ital EX penditure What is it? Term to describe the purchase of “big ticket” items. These are not normal trading expenses and will drive benefit for future years. Why is it important? It is fundamental for future growth and development for the business
Financial Terms To Demystify Depreciation & Amortisation Overheads Gross Margin
Depreciation & Amortisation What is it? The yearly accounting (non cash) cost of big purchases (property, store fit outs, RVS project) Calculated as the cost of the purchase divided by the estimated useful life of the purchase. Depreciation is a cost on tangible purchases and amortisation on intangible purchases. Why is it important? Depreciation smooths out the impact of large purchases in our profit and loss performance. Matches the cost of large purchases with the benefit received from asset bought. Trading Profit £10k Buy a Car No CAPEX 5 Life (years) Refit Purchase Depreciation cost £2k for next 5 years Time Y1 Y2 Y3 Y4
Financial Terms To Demystify Depreciation & Amortisation Overheads Gross Margin
EBITDA E arnings B efore I nterest, T ax, D epreciation and A mortisation What is it? An additional profitability measure. Trading profit adding back costs of depreciation and amortisation Why is it important? A good indication of cash profit driven from trading activities. Excludes the annual accounting cost of CAPEX items £100,000 £70,000 £30,000 £21,000 £19,000 £10,000 £9,000 Gross Sales Cost of Sales Depn & Amort EBITDA Overheads Trading Profit Margin
Financial Measures – Why oh Why ? What is success and how do we measure it? -Comparisons Achieving or beating the Outperforming last year? budget? Beating the competition?
Budgets and Forecasts What are budgets and forecasts? In simple terms: • A budget tells you where you want to go A forecast tells you where you are going • Why: Predict future performance and anticipate changes • • Assist in monitoring control of current performance Set expectations of what can de done and what can’t • • Set expectations of required activities/results desired
Budget Periods Periods 10-12 1-3 Results AGM The Accountancy Q1 Q3 Forecast Forecast Cycle 3YP Periods 4-6 Periods 7-9 Q2 Forecast
TSC Money Merry Go- Round ; From TSC 2015-2016 – Where did all the money go? Customer and Beyond! 4% Cost of Sales Cost of Sales £257 M (69%) 5% People Costs 1 1 1 Property Costs People Costs £ 51 M (14%) Other Overheads 6% Depreciation Trading Profit Property Costs £ 22M (6%) Net Finance Costs 14% Distributions 69% Other Overheads £18M (5%) Depreciation £14M ( 4%)
TSC Money Merry Go Round-Real Life Where does the cash profit go? Cash Profit £ - 18.8M – Turns into: (-) CapEx - £13.5 M (-) Loan Repayments- £3.2M (-) Distributions- £2.6M (-) Interest and Tax -£ 0.4M (+) Add cash from Funeral Plans - £2.3 M = Equals £1.4M Net increase to TSC Cash holding.
CAPEX Investment – What could this buy us? CAPEX 3 new crematoriums £13.5m 135 funeral homes 25 new stores ½ of Wayne Rooney!
How are market challenges going to affect future financial trends? 14.00 12.00 10.00 8.00 Inflation (%) 6.00 4.00 2.00 - -2.00 -4.00 -6.00 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 JAN JAN JAN JAN JAN JAN JAN JAN JAN JAN JAN JAN JAN JAN JAN JAN JAN Food and Drink CPI
April 2016 – Discounters Growth puts pressure on Top 5 Other 5.20% Iceland 2.00% Lidl4.40% Waitrose 5.10% Tesco 28.10% Aldi 6.00% Coop 6.10% 0.70% 0.70% Morrisons 10.50% Sainsbury 16.40% 0.20% Asda 16.20% 0.10% 0.00% 0.00% -0.10% -0.30% -0.40% -0.90% Aldi Lidl Other Coop Sainsbury Waitrose Iceland Tesco Morrisons Asda
Discounters continue to disrupt the market Morrisons pulled out of the convenience market in 2015 removing 140 stores from its estate, largely due to market pressure.
How are market challenges going to affect future financial trends? Increased Price deflation Change in consumer Asda competition o Negative L4L shopping trends Lidl o Lower gross margin Aldi Sainsbury’s Tesco Race for space National Living Wage o Sites become more expensive o Profit per store reduced
“Control the Controllables” • Waste Stock Leakage • Deficits • Investigate new Investing in new 5% improvement opportunities technologies = £500k or 1 new store thoroughly ensuring What can be done? best return on investment Price Investment Increase customer Build the basket - Build loyalty - Attract new customers satisfaction & member Drive LFL growth engagement ensuring they want to return
? ? Competition time ? ? ? 1. What does the “D” in EBITDA relate to debt or depreciation? 2. Complete the equation , Gross Margin is measured as Sales less what? 3. If we bought an asset with a useful life of 10 years, costing £500k, what is the annual depreciation charge? 4. In the presentation were TSC Property Costs £26m or £22m? 5. Was the total Capex in 2015-16 more or less than £15m? 6. Is amortisation the cost of tangible or intangible assets? 7. Is Trading profit measured before or after tax? Tie Breaker: To the nearest £100k, what was the total amount of cash receipts from funeral plan sales in 2015-16? ( e.g £5.5m )
Thank you for not falling asleep! Any questions?
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