(Solution) University of Northampton FINM036 Assignment 2 Briefing
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Description
Solution
Executive Summary
This report entails an analysis of the vision and strategic financial objectives and performance of Hummingbird Resources PLC. Notably, a company’s financial analysis provides insights into the its performance compared to its competitors. The information is also used to develop improvement strategies. The report comprises of two sections. Section one is concerned with the company analysis through both financial and non-financial ratios. These include profits, efficiency, liquidity, and leverage. Section two involves evaluating the firm’s corporate governance compliance and impacts on the brand and reputation. From the analysis, Hummingbird Resources is characterised by creativity and innovation, profound strategy, and competent leadership, although there is inequality in the board of management and top positions. The organisation has demonstrated remarkable financial performance over the last four years, as reflected in the profitability, efficiency, liquidity, and leverage ratios. Based on the financial analysis, Hummingbird Resources has an effective strategy that converts the assets to revenue. Corporate governance is described by compliance with the Quoted Compliance Alliance Corporate Governance Code. For the company to become FTSE100, there is a need for continuous improvement, research, and innovation to ensure efficiency in production and achieve financial objectives, including high cash flow.
Table of Contents
SWOT Analysis of Hummingbird Resources 5
Corporate Governance Compliance. 11
Impact on the Brand and Reputation. 12
Proposed Medium Term Financial Strategies. 12
Introduction
The financial analysis of an organisation aims to evaluate the economic trends for building long-term plans for the firm’s activity and financial policies. The financial analysis insights aim to identify companies and projects that the company can invest in to increase its competitiveness. The financial analysis is completed by examining the financial statements, including cash flow, balance sheet, and income statement (Tuovila, 2020). This report entails the financial analysis of Hummingbird resources, an African gold explorer, developer, and producer. Notably, the company was listed on AIM in 2010 December. The report entails two sections. Section A focuses on analysing the relevant financial and non-financial ratios, including profit loss, efficiency, and liquidity. Section B entails a critical evaluation of the corporate governance compliance and effects on the reputation and brand. Further, recommendations on the company’s financial strategies to become dominant or an FTSE100 are provided.
Section A
Company Overview
Hummingbird Resources Plc is a mining firm founded in 2005 to produce, develop, and explore assets that are world-class. In 2010 December, the company was listed on the London Stock Exchange and has significantly grown as a global resource inventory. In West Africa, this growth is reflected in the increase from 0.8Moz to more than 6Moz. Some of the corporate highlights by the third quarter of 2020 include group cash of US$9 million from US$6 million from the second quarter, a net debt of US$10 million and a gold inventory of 4,600 oz., worth about US$9 million (Hummingbird Resources, 2020c). If the gold inventory value is included in the financial calculation, the net debt decreases to approximately US$1 million. The company has a total of 265 employees as of November 2020.
Hummingbird Resources Plc has a team of competent leaders that help it to implement its vision. The board comprises Russell King (non-executive chairman), Dan Betts (CEO), Tom Hill (Finance Director), and four non-executive directors. Among the senior management team, individuals are Edward Montgomery (Chief Strategy and ESG Officer), Shaun Bunn (Senior VP Project Delivery, Edrich Welthagen (General Manager Mali), and Tim Huskinson (VP Finance). The team collaboratively work to ensure the achievement of the firm’s vision, such as 2025 one, including >350-500 koz gold producer, multi-asset and jurisdiction production, <$1,000/oz AISC, >10-year mine life, capital management initiatives and strong cash flows and focus on governance, social, and environmental aspects.
Company Analysis
SWOT Analysis of Hummingbird Resources
Strengths
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Weaknesses
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Opportunities
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Threats
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SWOT Analysis for Hummingbird Resources
Equity Holdings
Hummingbird Resources PLC major shareholders are outlined in table 1 below. The ranking is centred on the holding and value. Notably, the major shareholders are institutions or individuals owning more than 3% of the organisational shares, and the annual accounts are aware. In table 2, it involves the director shareholdings, which also comprise of the holding and value. The calculation of value is through the product of the current share price and the individual’s amount.
| Notifier | Holding | Value |
| Ruffer LLP | 32,568,649 | £10,259,124.36 |
| The Capital Group Compnies, Inc | 31,533,000 | £9,932,894.92 |
| Maharishi Ramkorun | 24,637,159 | £7,760,705.03 |
| Gold Fields Metals RV | 21,258,503 | £6,696,428.39 |
| Odey Asset Management LLP | 16,553,212 | £5,214,261.74 |
Table 1: Major Shareholdings (Share Cast, 2020).
| Name | Holding | Value |
| Daniel E. Betts | 5,049,149 | £1,590,481.92 |
| Matthew C. Idens | 2,741,607 | £863,606.20 |
| Stephen A. Betts | 877,601 | £276,444.31 |
| Russel King | 303,955 | £95,745.82 |
| William Benjamin Cook | 287,150 | £90,452.25 |
Table 2: Director Shareholdings (Share Cast, 2020).
Statement
As an independent non-executive chairman, Russell King explains his responsibility of providing overall leadership and ensuring that the corporate governance model is adopted, delivered, and communicated for the organisation. According to the chairman, the company has maintained remarkable performance and abides by the QCA corporate governance principles. Drawing from the 2020 performance highlights in various categories, the company has maintained continuous growth while reducing bank debt. As of 30 September 2020, the group cash was US 6$ million, and the total debt has been reduced by US$10 million (Hummingbird Resources, 2020c). Although the production guidance has been maintained at 110-125 koz, the realistic expectations for the whole year aim to be lower than the guidance. This is attributed to the increased cost pressures, including COID-19, excessive rain, and temporary closures at the Mali border.
Competition
Hummingbird resources function in a dynamic and competitive environment. The competitors include African and European countries. The leading competitors are PanAfrican Resources, NovaGold Resources, Global Gold Corporations, and Magellan Gold. Considering the Pan African Resources, the organisation is focused on producing a capacity that is excess of 170,000 oz of gold annually. The firm owns and operate a high-quality portfolio and low-cost projects and operations in South Africa. The competitor’s financial performance is demonstrated by revenue of US$ 273.7 million, an increase of 25.9%. Despite the COVID-19 pandemic, Pan African Resources have maintained a production above its guidance (Pan African Resources, 2020). The production has increased by 4.1%. The key driving factor has been adjustments to the global issues and dynamics across all the competitors, including slow economic growth. Effective strategies achieve this by the leadership and management team.
Theoretical Basis
Hummingbird Resources’ growth and development can be associated with its strategy, reflecting on the Triple Bottom Line (TBL). According to Hammer and Pivo (2017), TBL theory postulates that its strategy should focus on its strategy’s social, economic, and environmental dimensions. Hummingbird Resources has focused on the three dimensions as the guide to its strategy. Under the environment, the firm has improved in its diversity strategy, maintained the WGC membership, and is committed to TSR monitoring, reforestation, and water management. Diversity is reflected in commitment to repair and enhancement of the environment around the mining areas. Hummingbird Resources is also commuted to adherence and implementation of the responsible gold mining principles (RGMPs). Socially, the company focuses on maintaining a legacy to the community. The commitments are focused on education, sanitation and water, health, and alternative livelihoods (Hummingbird Resources, 2020c). Examples are manufacturing of soap, poultry far, and spraying malaria. Economically, among Hummingbird Resources’ 2025 vision is establishing a healthy cash flow and capital management initiatives.
Hummingbird Resources is also characterised by a robust supply chain, cost-saving strategies, and consistent debt management, aiming to pay off by the end of 2020. Among the company’s weaknesses is adjusting to the environmental dynamics, including COVID-19 and low rainfall. Production efficiency is reflected in the growing cash flow of $45 million for the first half of 2020 compared to the first half of 2019. The firm has also maintained responsible outsourcing and supply chain management for its raw materials. However, there is a need to establish effective strategies to address the increasing global competition from both African and non-African-based companies.
Financial Ratios Analysis
Profitability Ratios
These ratios are financial metrics categories examining the company’s ability to generate earnings based on the operation costs, revenue, assets in the balance sheet, and the shareholders’ equity over a certain duration. The ratios are established at a specific point. Taking a five-year plan and evaluation period, it is possible to demonstrate the company’s growth or loss. This information helps determine the effectiveness of the firm’s strategies and whether there is a need to change. Notably, high profitability ratios are favourable and demonstrate that the company has been performing exemplary. For Hummingbird Resources, the profitability ratios are taken at 31 December for the last four years. The information used to describe the company’s profitability ratios include the assets, pre-tax profits, retained profits, and operating cash flow. This information is provided in table 3 below for the 2014-2019 period.
| Financial Ratio Aspect | 31 December 2016 (USD) | 31 December 2017 (USD) | 31 December 2018 (USD) | 31 December 2019 (USD) | |||
| Total Assets | 177.53 | 254.22 | 311.09 | 260.1 | 265.10 | 261.19 | 393.13 |
| Operating CF | -6.37 | -0.65 | 6.51 | 18.13 | 6.51 | 44.72 | 37.71 |
| Pre-Tax Profit | -8.44 | -5.34 | 23.01 | -11.65 | 9.40 | 9.40 | 38.04 |
| Retained Profit | -8.44 | -0.53 | 17.91 | -10.25 | -93.30 | 5.42 | 38.04 |
Table 3: Profitability Ratio Aspects for Hummingbird Resources. (The figures in blue are for Pan African Resources) (ADVFN, 2020a; ADVFN, 2020b)
Hummingbird Resources demonstrates a significant growth in profit over the last four years. From the assets, comprising of the fixed, intangibles, fixed investments, current assets, stocks, debtors, cash and securities, it is apparent that the company has increased its assets by more than 50% between 2016 and 2019. The same significant increase has been reflected in the cash flow, which has grown from -6.37 to 44.72 m. Hummingbird Resources’ effectiveness in its strategy is reflected in the rise in profit, both pre-tax and retained. Between 2016 and 2019, the profits have increased from -8.44 to 5.42. Notably, the profits are the differences between the costs of production and revenue. For Hummingbird Resources, the increase in profits demonstrates an increase in revenue compared to production costs. This is attributed to the company’s strategic approaches, including diversity improvements.
The importance of evaluating the assets is to evaluate the profitability in relation to the expenses and costs. For Hummingbird Resources, the total assets and revenue increase demonstrates the earnings’ value from all sales. This is after the expenses, taxes, and all costs have been considered. Notably, the more assets that an organisation has accumulated, the more the potential of profits and sales it may generate. For Hummingbird Resources, the increase in the assets is directly proportional to the gains.
Comparing the profitability ratios between Hummingbird Resources and Pan African Resources, it is apparent that Pan African Resources register better results over the last four years. This is as demonstrated in table 3 above. On the other hand, it is essential to distinguish the sustainability pattern between the two countries. For Hummingbird Resources, the results are more sustainable and demonstrate continuous growth. This is unlike Pan African Resources, where the figures are fluctuating. For instance, the retained profits in 2017 for Hummingbird Resources were -0.53. In 2019, the profits had increased to 5.42. For Pan African Resources, the retained profits were 17.91 in 2017. In 2018, however, the profits had reduced to -93.30.
Efficiency Ratios
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