Danieli - Consolidated Financial Statements Analysis
Essay by Andrea Introzzi • April 9, 2018 • Term Paper • 1,315 Words (6 Pages) • 1,092 Views
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About the company
The Danieli Group, or Danieli & C Officine Meccaniche SpA, is an Italian company that operates primarily in the iron, steel, and non-ferrous metals industry. The company designs, produces, and provides installation of innovative machinery and plant. It sales a broad range of services and products that vary from mines to primary processing machinery and plants, such as blast furnaces, steelworks for liquid steel, or continuous casting, to secondary processing ones, i.e. rolling, forging presses, longitudinal and transversal cutting. It supplies also automation and control systems, and cranes and lifting equipment. Besides, it has a branch that is leader in the production and sale of special steel.
Steel & Steel-making Plants Market
At the closing of 2017, the worldwide steel production reached almost 1,610 million tonnes with a slightly decrease y-o-y in comparison with 2016 output (Deloitte CIS Research Centre, 2017). Producers showed great effort in operating plants in the most innovative way by using at the best the existing innovative technologies (i.e. Green Steel) and bringing waste down to zero. Consequently, customer service and high-quality production are the most influencing factors in order to obtain remunerative prices and continuity in delivering to customers who are switching toward an “on time” approach in order to reduce stock volumes (Danieli, 2017).
Danieli’s customers’ interest in investing in new plants and updating and developing technologically the existing one has driven Danieli’s high investments in R&D over the last ten years in order to maintain competitiveness in the existing and emerging market, widening the target audience.
Financial Statement Analysis
Throughout the last years, Danieli Group has seen its financial position weakening. The descending trend of profits is due to a worsening of the inventory management and financial decisions that more than halve the financial income over the 3-year period. In addition, during the last financial period, the company incurred in “non-recurring” charges and costs because of a process of restructuration a subsidiary, the restarting operations of a steelmaking plant, and an operational down-time of another steelmaking subsidiary.
Profitability & Management Effectiveness Analysis
Operating & Net Profit Margin
EUR (in millions) | 2017 | 2016 | 2015 |
Sales | 2555.7 | 3201.7 | 2666.2 |
Operating Income | 70.3 | 90.2 | 150.2 |
Operating Margin | 2.75% | 2.82% | 5.63% |
Net Income | 50.5 | 88.3 | 161.8 |
Net Profit Margin | 1.98% | 2.76% | 6.07% |
Table 1 – Operating & Net Profit Margin (Company Ratio Comparison, 2018)
As it can be seen from Table 1, the operating margin between 2015 and 2016 drop by 2.81 percentage point due to high changes in inventories of finished products and construction contracts. Regarding 2017, it is almost unchanged that imply the management has been able to rationalize the operating costs.
However, if net profit margins are compared it can be notice a decrement to 1.98% in the financial period. This is due to a worse financial management and to the alignment of the currency exchange rates, in particular USD against EUR, that produces a write-down of the Group’s foreign currency funds (Danieli, 2017).
ROE – Return on Equity
EUR (in millions) | 2017 | 2016 | 2015 |
Net Income | 50.5 | 88.3 | 161.8 |
Total Equity | 1818.5 | 1776.5 | 1712.8 |
2.78% | 4.97% | 9.45% |
Table 2 – ROE (Company Ratio Comparison, 2018)
As expected the ROE is decreasing because of the decreasing net income but also a significant increase in the total equity. The current ROE is far below of both the industry and sector average, respectively of 16.14% and 15.84% (Company Ratio Comparison, 2018).
ROA – Return on Assets
EUR (in millions) | 2017 | 2016 | 2015 |
EBIT | 70.3 | 90.2 | 150.2 |
Total Assets | 4811.9 | 5333.1 | 5156.8 |
1.46% | 1.69% | 2.91% |
Table 3 – ROA (Company Ratio Comparison, 2018)
Even though the ROA shows a trend similar to the ROE’s one, it has a minor drop in the percentage. The decrement in the efficiency is partially due to € 22.5 millions of “non-recurring” costs of maintenance and upgrading operations on own plants, which have contributed to a loss in term of sales during the period of stop. Having said that, the governance of the company has been able to manage the assets profitably.
Efficiency Analysis
Assets Turnover
EUR (in millions) | 2017 | 2016 | 2015 |
Sales | 2555.7 | 3201.7 | 2666.2 |
Total Assets | 4811.9 | 5333.1 | 5156.8 |
0.53 | 0.60 | 0.52 |
Table 4 – Assets Turnover (Company Ratio Comparison, 2018)
Table 4 shows how the Asset Turnover ratio has fluctuated in the 3-year period, however, remaining consistent with itself. Again, inactive plants negatively affect the ratio during the period. If it is compared with the peers’ avarage in the industry the values are closed (Industry average: 0.57) while in the sector it is below of 0.19 points.
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