When interviewed in 2013 Professor Chris Noble confirmed that the figure also represented the profits made by Inch’s that have not yet been allocated to them. The respective INC for the Woolworth Limited group applies to the external equity interests held in Woolworth Limiter’s subsidiaries of ALL Group Pity Ltd, Australian Independent Retailers Pity Ltd, Berger Pity Limited, Hydro Holdings Pity Ltd and Statewide Independent Wholesalers Limited (Woolworth 2012, p 164-167). Woolworth Limiter’s annual report is not useful for non-controlling shareholders.
The reason for this is the information regarding INC is aggregated as it combines all the information from separate subsidiaries with No’s into combined figures which cannot be separated by a shareholder. It may then be argued that information regarding INC should be more detailed however when interviewed in 2013 Professor Chris Noble suggested that non-controlling shareholders should only be interested in the reports of their subsidiary as they are more detailed. Fortunately there are separate financial statements available for the subsidiaries with non-controlling interests.
The reason for this is that the class action, ASIA Class Order 98/1418, exempting some subsidiaries from reporting requirements only pertains to wholly-owned subsidiaries (Woolworth 2012, p. 168). Therefore separate financial statements are available for subsidiaries of Woolworth Limited that have non-controlling interests.
The Australian Accounting Standards Board (SAAB) (2010, Para 19) gives controlling entities a choice between measuring the non-controlling interest (NC’) using the 100% method or the proportionate method.
The proportionate method does not assign goodwill to the INC as it relates to the subsidiary’s net identifiable assets. In comparison the 100% method requires the non-controlling interest to be measured at its fair value which includes goodwill. One reason an entity may prefer to use the proportionate method is that it does not require a calculation of fair value for the NC’. The calculation of fair value for the INC may be difficult in circumstances where an active market does not exist.
Using Woolworth Limiter’s annual report we can gather information relating to which method they chose to use. Their significant accounting policies relating to goodwill state that ‘goodwill represents the difference between the cost of the acquisition and the fair value of the net identifiable assets acquired’ (Woolworth Limited 2012, p 108). Therefore this policy describes the same process for identifying goodwill as the process used in the proportionate method and it may be concluded that Woolworth is using the proportionate method.
The issues regarding the choice between the two methods are interesting. The choice seems to be more beneficial for the parent entity rather than the INC as a company such as Woolworth Limited may choose to consistently use the proportionate method.
This may misrepresent the value of the INC to be lower as this method does not have a goodwill component for the INC which the 100% method often has. Therefore the disclosures under the proportionate method made by Woolworth Limited regarding the INC values could be undervalued.
When interviewed in 2013 Professor Chris Noble suggested that the choice between the two methods may affect comparability of financial statements. This point is reiterated by the International Accounting Standards Board (2012, Para BOCCE). A further issue according to the International Accounting Standards Board (2012, Para BOCCE) is that the 100% method is more expensive to use which is one key reason for the inclusion of the proportionate method. Using all these arguments one can see that there are many perspectives about which method is better and whether a choice should have been included in the standard.
Still we should not be too concerned as Professor Chris Noble confirms in his 2013 interview that not many business acquisitions have INC components or they have an insignificant INC component and therefore the issue of choice under SAAB 3. 19 is small. Part 3: Segment note a) Reportable segments operations according to SAAB 8. 13. Each reporting segment is managed separately due to the varying products and services they offer, as well as the requirement of different technology and marketing strategies’ (Woolworth 2012, p 119) of each business unit.
The reportable segments are split into two categories of Retail Operations and Hotels, with the former comprising of Australian Food & Liquor, New Zealand Supermarkets, Petrol and Big W.
As at 24 June 2012, the Australian Food & Liquor segment comprised of 872 Australian supermarkets, totaling approximately 6. 52% of total BIT, and 160 Dan Murphy Liquor stores (Woolworth 2012). The Woolworth convenience liquor businesses; BBS and Woolworth Liquor are also included within the segment.
This segment relies heavily on consumer confidence levels as the bulk of the sales stems from general groceries found at the supermarket as an alternative to fast food outlets that offer more affordable meal options. Similarly, the New Zealand Supermarkets segment specialties in the ‘procurement of Food and Liquor and products for resale to customers in New Zealand’ (Woolworth 2012, p 119). The ‘Countdown’ supermarkets operate in the same way as the Woolworth supermarkets in Australia, with a total of 161 supermarkets opened across the country as at June 24 2012.
In the Petrol segment, the ‘procurement of Petroleum products for resale to customers in Australia’ (Woolworth 2012, p 119) is categorized through the Woolworth/Caltech alliance sites. This segment, coupled with the Big W segment, ; the ‘procurement of discount general merchandise products for resale to customers in Australia’ (Woolworth 2012, p 119) round off the reportable retail operations segments as the smallest, bearing not as big influence as the supermarket segments in relation to the group.
Furthermore, the hotels segment is heavily affiliated with the Igor stores and supermarkets, as they provide leisure and hospitality services including alcohol and food, as well as gaming and accommodation. There are 294 hotel venues in operation as at June 24 2012, with Dan Murphy’s and BBS stores affiliated with over 500 hotels in total. ) Investment analysis When determining the ‘better’ investment between Woolworth Limited and Westerners Limited amidst volatilities in the New Zealand economy and Australian groceries, liquor and petrol sectors, it is important not to make direct comparisons between the two companies encompassing different segment disclosure methods spite the compliance with SAAB 8.
Woolworth has identified New Zealand Supermarkets as a reportable segment, presenting comprehensive revenue data including other operating revenue and and b) by only disclosing the New Zealand revenue by geographical location.
Nevertheless, assuming that the sales to customers was used by both companies, the following revenue calculations were calculated since the previous year: Comparability between the competing companies becomes increasingly difficult when analyzing the investment in relation to the volatile groceries, liquor and petrol sectors. Whilst Woolworth identified the Australian Food & Liquor and Petrol business units as different reportable segments, Westerners grouped this financial information under ‘Coles’.
The information regarding the allocation of revenues between operating units for Westerners is not provided, hampering an ethical investing choice for external users. Despite the reporting issues, a revenue analysis was conducted in order to determine the most profitable company. Since the Coles segment was determined by a sum of undisclosed food, liquor, hotels, convenience and petrol data, the following analysis seed Woolworth as a sum of its same divisions: Though abiding by SAAB 8, Westerners disclosed as little information as possible.
It is clear that Westerners possesses a fear of disclosure, and would rather present aggregated data in order to hide potential information about risk, losses and debt levels for a particular Company 2012 $A revenue (millions) 2011 $A revenue (millions) $A change (millions) % change Woolworth 4301. 8 4110. 5 191. 3 4. 654% westerners 1283 1174 109 9.
2845% Company Segment Revenue 2012 (millions) Segment Revenue 2011 (millions) Segment BIT 2012 (millions) Segment BIT 2011 (millions) % change in segment Revenue % change in segment BIT Woolworth 45815. 43,478. 4 3140 2980. 2 5. 34% 5. 36% Coles 34,117 32073 1356 1166 6.
373% 16. 3% segment. However, when removing segment reporting variability between the two companies, it is clear that greater growth opportunities exists for Westerners, and is therefore the recommended investment. C) SAAB 8 non-disclosures I) Despite clear disclosure of revenue for its reportable segments, Woolworth did not company did not comply with SAAB 8. 21 b), where information about segment assets ND liabilities was not disclosed. However, SAAB 8.
3 states that ‘an entity shall report a measure of liabilities for each reportable segment if such an amount is regularly provided to the chief operating decision maker’ (SAAB 2010, p 15). Similarly, this extends to the non-disclosure of segment assets according to SAAB 25: ‘only those assets that are included in the measures of the segment’s assets that are used by the chief operating decision maker shall be reported for that segment’. Here it is agreed that the COD of Woolworth does not believe the risk and opportunities f these items are important, thus the non-disclosure in the segment reports. T) Whilst Woolworth was able to disaggregate the diverse aspects of their total business, Westerners aggregated the majority of their core business operation within the ‘Coles’ segment. It is clear that Westerners does not comply with SAAB 8. 20; by not enabling users to ‘evaluate the nature and financial effects of the business activities in which it engages’ (SAAB 2010, p 14).
However, SAAB 8. 22 b) states that an entity shall disclose the types of products and services from which ACH reportable segment derives its revenues’ (SAAB 2010, p 15).
It is clear that Westerners abide by this standard by disclosing the components of the Coles segment, instead of the revenue figures generated from each segment. D) AC investigation I) Acts of ‘unconscionable conduct’ such as high bargaining strength for Woolworth and Westerners resulting in demands for extra payments, penalties and threat to suppliers that products will be removed from shelves (Role 2013) would be highly financially beneficial to the two groups as they are significantly lowering the costs of applies, and thus allowing opportunity to increase profit margins.
This is further evidenced in Coles’ 15% increase in pre-tax earnings in 6 months (Role 2013) and a 24% increase in pretax earnings for Westerners despite the same level of stock.
The two groups also demonstrate significant market power through ‘interesting’ competitive methods (Kid 2013) of purchasing each other’s profitable stores as the purchases show the ‘significant financial strength’ (AC 2013) of the business. I’) Coles and Woolworth can minimize disclosures as to hide ‘unconscionable induct’ and ‘misuse of market power’ by not disclosing costs of supplies in their segment notes.
SAAB 8 requires a ‘management approach’ to be adopted where information used by the ‘chief operating decision maker’ internally for segment evaluation is disclosed (SAAB 8. B). This allows great flexibility for management to aggregate figures into the disclosed segments which Woolworth had divided into geographical and operational segments. The aggregated figures disclosed are summarizes and does not disclose any information about cost of supplies reported.
Australian Food and Liquor segment reported $37,681.
M revenue, which depicts a substantially larger segment relative to New Zealand Supermarkets, Petrol, Big W and Hotels, which average at $MM each. Iii) Since Woolworth’ business in Australia is significantly larger than other segments, from the perspective of consumer groups, it would be beneficial to further divide the Australian Food and Liquor segment into State segments, for example. Currently, Australia has 872 stores, New Zealand has 161 stores and that NEWS, SLD, VIC all have larger number of stores than New Zealand, it would be beneficial to further dissect the segments into regional groups.