Bic Financial Analysis

Bic Financial AnalysisFinancial management by Virginie STUDLERTable of contentsIntroductionI. Overviw of the company1. An international brandII. Financial analysis1. Capital and shareholders2. Fianacial ratios3. In the futureConclusionIntroductionThe year was very important for BIC Group, with an increasing of the challenges on the global economic, from raw material price increases to currency fluctuations. Bic actually gaining market share in highly competitive categories.That is why today it could be interesting to have an evaluation of this company which act all around the world on very competitive market, to understand if in the future, Bic can continue to growth and compete on all the countries.Analyse the financial policy of a group as BIC can permit us to have a clear idea of its results, and more over of its profitability. We have also to analyse the risk ratios of this company, to be the more precise as possible in our analysis.First of all, we are going to describe the products and the international brand which is BIC, to have a idea of the economical and competitive factors that concerns this company. We also deal with customers and clients.The second part will be dedicated to the analysis of many ratios concerning the profitability and the long term strategy which can touch BIC in the future. Within this analyse we describe more the profitability that can expect shareholders who invest in this company.Within all this aspects we will make a conclusion that could bring orientations for eventual investments or not in Bic Company.I.Overview of the companyBic is a company based in Clichy, France. It is best known for making disposable products including lighters, manets, ballpoints pens and shaving razors. Its more important competitors are Faber-Castell, Global Gillette, Newell Rubbermaid and Stabilo.Bic is a familial company founded by Marcel Bich with Edouard Buffard in 1945. They bought a factory and made parts for mechanical pencils and fountain pens. In 1950, Mr Bich introduced his own ballpoint with a thick, paste-like ink and he named it the BIC. He do not gives his name to the product because in an international strategy he wanted to avoid bitch pronunciation.Nowadays has sold 100 billon of disposable ballpoint all around the world, in Belgium, France and Greece the name has become generic all disposable ballpoint are named BIC which shown the power of the brand.Bic is one of the world leaders on paper producing products, lighters and shavers. This company uses many distribution channels as big retailers, tobaccos offices, supermarkets and hypermarkets.The Main competitors in each domainPaper producing : Gillette, Pilot, Newell, Reynolds, SchwanThis activity know high growing in countries in development, this growth is less in developed countries. In this sector, Bic is one of the leader but without a real dominant positionLighters: Swedich match, Tockaï, Chinese lighters.Leader on this market all around the world, Bic must be precautious on this activity because of new regulations and new restrictions on tobacco.Shavers : Gillette, Warner Lambert Shick, Wilkinson, jetablesChallenger on this market, Bic is specialised on disposable shavers, as contrary of the leader Gillette.BIC brands are used by consumers worldwide and represent quality and reliability in their respective markets. Consumers have come to trust BIC brands and appreciate the value that each of the productsoffer. Bic has several brands like :Marcel Bich also created BIC Sports in 1979. He had confidence in the future of the sport and invested in ultra modern machines allowing him to manufacture thousands of windsurf boards at an affordable price. For 20 years, BIC Sport has written windsurf history with an array of legendary competitors and shapers. Today, BIC Sport is one of the world leaders in windsurf and surf board production. Its technological advances allow it to offer the best price/quality mix in its market.1.An international brandEUROPE[1]In 2007, Europe performance improved compared to 2006. Sales reached 460.4 million euros, up 6.7%, with growth in all categories. The stationery market grew slightly, despite the pressure from private labels and low price products. BIC strengthened its leadership once again in 2007 and achieved more than 15% market share in value. They improved their performance in all distribution. Innovative products such as BIC Cristal Gel, Mechanical Pencils, BIC Kids colouring products, correction products and BIC Select, the brand of high range products writing instrument performed well. In shavers, BIC maintained and even grew its market share in some countries. The continuing decline of single-blade sales was again offset by the increase of triple-blade sales. The launch of BIC Soleil System for women with cartridge refills in the UK offered a new opportunityfor BIC in the shaver market. In an aggressive competitive environment, BIC Soleil has been the only brand to create value in this segment in 2007, notably helping to attract new consumers to the BIC shaver franchise.NORTH AMERICA AND OCEANIA[2]2007 sales reached 641.3 million euros, -4.3% as reported and +3.0% at constant currencies. In a stationery market trending flat in the USA , BIC managed to improve its market share, particularly during the back to school season. However, the company continued to build momentum at the point-of-sale level, thanksto the success of products such as BIC Mark-it permanent marker, BIC Mechanical Pencil, BIC Pro+ ball pen and BIC Reaction pen.Maxi, Mini and lighter cases all showed gains over 2006 as they also increased the distribution in convenience stores. BIC continues the « risk-to-retailer » communication campaign with added focus on the danger of too many Asian lighters that do not comply with U.S. laws, as well as the danger to children with the sale of novelty, toy-like-lighters. The one-piece shaver market continued to grow on a value basis, driven by the triple/quadruple-blade segment and a value share of approximately 50%. BIC’s overall growth was driven bythe BIC Soleil triple-blade one-piece shaver.LATIN AMERICA[3]In 2007, sales increased by 6.4% as reported, overall sales grew despite increased competition from Asian imports, which benefited from favorable exchange rates, especially in stationery and lighters. BIC focused on quality, distribution and service to help consolidate its market positions within the categories, particularly in Brazil where they achieved record sales volume for ball pens. In the region, they focused on BIC Cristal ball pens, BIC Evolution pencils and BIC correction products. The integration of PIMACO, Brazil’s leading manufacturer and distributor of adhesive labels for office, school and home use, helped BIC grow in the office segment and gain distribution. All items now integrate new packaging graphics that include the BIC logo and consolidate the presence of the BIC brand within the category and in the office product segment. In lighters, they grew the market share both in units and value.MIDDLE EAST, AFRICA AND ASIA2007 BIC sales in the Middle East, Africa and Asia region were 84.5 million euros, down 8.7% as reported. In Africa and the Middle East, in an unfavourable environment, BIC improved its distribution and visibility in all categories. They tried to improve the stationery products mix and expanded value added items in an area that historically only focused on the BIC Cristal ball pen. This was achieved during the back-to-school season, with a targeted communication on both the BIC brand and product range. Sales of lighters also increased, despite competition from lowcost Asian products, thanks to a strong focus on distribution and the introduction of a local souvenir series in 19 countries. Communication of BIC’s commitment to quali ty and safety, including the « BE SAFE » program in South Africa, has been key to improving the awareness of the BIC brand and differentiating BIC from low-quality competition. Shaver performance strongly improved, with the successful introduction of triple-blade shavers like the BIC 3 and positive response from the trade and consumers to the range of female products, including BIC Soleil. The successful new products launched in 2007, including the BIC Reaction ball pen and Sheaffer Valor fine writing instrument, helped to improve the brand image and presence across the region, with positive consumer feedback. Now we know much better the BIC company and all the market that belong to it. In the second part we are going to deals with the financial side of the company and all its ratios in order to see if we can invest on it or not.II. Financial analysis1.Capital and shareholdersSince its creation in 1945, the decision power is control by BICH family. Today the family control more than 43.5% of the capital, and 54.5% in voting rights. Actually, there is no other organism or person which keeps a block minority face to BICH family. The management is easier because of this managing aspect. Risks of disagreement within the strategy of the company are less. But si nce it’s beginning on the business, the family wants to insure the strategy on values that represents the company, as the quality, the respect of consumers.I will explain what is happened this year with the share because in my mind it is an important point for the future.BIC obtained at the Annual Shareholders' Meeting on May 21, 2008 to renew its shares repurchase program. The company :●repurchased 458,381 shares at an average rate price of 37.73 euros, in order to optimize theinvestment and financial management of the Company●did not sell any share to holders of options to purchase the Company’s shares.Furthermore, according to a liquidity agreement with Natixis and during the 1s Half of 2008, the Companyalso repurchased 237,965 shares for a total value of 9.1 million euros and sold 236,710 shares for a total value of 8.9million euros and 98,012 shares have been cancelled.During the last 24 months, SOCIÉTÉ BIC cancelled 2,158,983 shares, 4.42% of the share capital as of June 30, 2008. No element other than the ones mentioned below may have an influence on a take-over bid, or have the effect of delaying or of preventing a change of control:●Double voting rights as stated by the Articles of Incorporation,●Share repurchase program,●Shareholders’ Meeting a uthorizations to increase the share capital.Moreover, it is specified that SOCIÉTÉ MBD, the Bich Family’s holding, concluded various agreementsof conservation of 12,000,000 shares.Dividend analysisLimited company.Capital: euro 186,368,196.52Divided into 48,787,486 shares of common stock, par value euro 3.82Listed on Euronext ParisThe Board of Directors of BIC proposes the distribution of dividends primarily as a function of the Company’s earnings.We can note that dividends constantly increasing since 2002. This first information is interesting because that traduce a successful business during the last years, and a bonus profit for shareholders. The strategy on short and long terms is well realised, if it wasn’t the case these numbers shouldn’t not reach this improvement. This first element can traduce a certain confidence for future investor in the company, but it’s not as many to be sure to make investment, we will see after in our risk part, if the risk on investment is well paid compare to the market.This ratio delivers information for shareholders on the value who can expect on dividends for next exercise. Thanks to this ratio, we have a clear idea on the expect amount and its importance within other companies.The pay-out ratio would be 38.5% in 2007, compared to 38% in 2006. This number is very good. An investment in Bic should be very efficient in the future because of this number. There are not a lot of companies which act on financial places, which couldn’t offer, this type and amount of di vidend. Shareholders must be confident only on this analysis point, and can expect a good dividend yield.In general, a high PER suggests that investors are expecting higher earnings growth in the future compared to companies with a lower PER. However, the PER ratio doesn't tell us the whole story by itself. It'susually more useful to compare the PER ratios of one company to other companies in the same industry. We can say that the PER is decreasing but it is the same for all the sector and compared to Gillette, Wilkinson, Reynold and Pilot this PER is on average.BIC takes also care of all its stakeholders. They give :●398 million to the employees, this amount includd wages, social contributions and profit-sharing paid toemployees.●75 million to the suppliers, this amount included BIC purchases of raw materials, consumables anservices.●95 million to shareholders, BIC paid 6.6 million euros in dividendes, 6 million on minority interest buyback and also invested 27 million in share buybacks.● 6 million for the bank which include 3 million euris related to loans, net of repayments, contracted by theGroup and 3 million following the reduction of financial asset portofolio.●83 million to the governments, that represents the corporate income taxes paid all over the world.●82 million for the net investments, included 69 million for manufacturing assets, the acquisition of patents,licenses and other investments for 8 million, the subsidiaries’ acquisitions for 13 million an d the disposal of manufacturing assets for 8 million euros.2.Financial ratiosTurnover evolution:The turnover has known a increasing by 4.6% from 2005 to 2006. Most of its growth it’s due to the shavers (+6.2%) portfolio but with the crisis in raw materials and the Chinese competition the turnover increases but just a little. This information proves that the company continue to improve its business because since 2002, we can observe that the turnover has grown by more than 17%.That traduces a well development of the company in a long term vision. Moreover the investment policy was efficient and well realised all around the world, Bic want to be more and more competitive because they realize that competitors appear and they are more and more efficient. It’s a reassuring element for future an actual investors, to give money for future investment for the development of the company.Let just have a look on the first 2008 figures:●BIC Group 1st Half 2008 net sales were 700.5 million euros, compared to 729.0 million euros in 2007,down -3.9%. Foreign currency fluctuations had a negative impact of -6.6%, of which -5.0% was due to the decrease of the US dollar.●2nd Quarter net sales were 392.4 million euros, compared to 398.6 million euros in 2007, down-1.6%.●The 1st Half gross margin decreased -0.3 points to 49.0% of sales versus 49.3% in the 1st Half of 2007.Price increases more than offset the impact of raw materials.Bic are confidents because they know that the sales decrease is in majority due to the sales decline in North America, which are the result of:●slowdown in traffic and ongoing inventory reductions within convenience stores●the acceleration of cigarette retail sales decline in the US.●financial crisis and the decrease of purchasing powerProfitability ratio :Return on asset :The return on assets ratio provides a standard for evaluating how efficiently financial management employs the average dollar invested in the firm's assets, whether the dollar came from investors or creditors. It shows us how many dollars of earnings they derive from each dollar of assets they control. The return on assets ratio measures how efficiently profits are being generated from the assets employed.Return on Assets = net profit before taxes / total assetsThe peer median is around 6.78% for 2007 we can say that BIC ROA is more important than peer ones. But it is a low return on assets, it is indicating that the earnings are low for the amount of assets.We can say that compare to the industry averages BIC uses its business assets with efficience.Return on equityNet Profit/Average Shareholder Equity for PeriodThe return on equity is one of the most important ratios for a shareholder. Indeed this ratio offers theopportunity to know the return on investment that can expect an investor on its money. In reality, that mean when one dollar or euro is invest, how much can it generate to its proprietary. In this sector the average ROE is 15.83% so we can observe that BIC is on the average.For one euro invested in Bic we can expect a return on the investment of 15%. We can consider these results as a good one, even if the figure is decreasing this year, because in general on the market this number is around 8%.The money invested is well profitable, and these results are i n development since 2003, that’s why make investment on Bic is interesting, simply because of the ROE.Liquidity measurement:Quick ration or acid-test ratioAn indicator of a company's short-term liquidity. The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company.The quick ratio = current assets – inventories / current liabilitiesThe quick ratio is more conservative than the current ratio, a more well-known liquidity measure, because it excludes inventory from current assets. Inventory is excluded because some companies have difficulty turning their inventory into cash. In the event that short-term obligations need to be paid off immediately, there are situations in which the current ratio would overestimate a company's short-term financial strength. Bic quick ratio is very good compared to the peer ones which is 101. We can say that BIC has a good position in the sector activity.Current ratioThe current ratio is a financial ratio that measures whether or not a firm has enough resources to pay its debts over the next 12 months.Current assets / current liabilitiesThe current ratio is an indication of a firm's market liquidity and ability to meet creditor's demands. If the current ratio is too high, then the company may not be efficiently using its current assets. Here for BIC it is mean that for every dollar the company owes has $ 3.28 are available in current asset. That is good compare to the sector because the ratio is around 117%, we can say that BIC has an healthy financial system. This ratio give to us the sense of the efficiency of a company's operating cycle or its ability to turn its product into cash. Debt ratio:Debt to equity ratioThe Debt to Equity Ratio measures how much money a company should safely be able to borrow over long periods of time. It does this by comparing the company's total debt and dividing it by the amount of owner's equity :Total liabilities / shareholders equityThe result we get after dividing debt by equity is the percentage of the company that is indebted. The normal level of debt to equity has changed over time, and depends on both economic factors and society's general feeling towards credit. Generally, any company that has a debt to equity ratio of over 50% should be looked at more carefully to make sure there are no liquidity problems. Bic has an debt to equity ratio a little bit higher but it is decreasing since 2005 which it is a good thing.Retention ratioPercentage of the earnings of a firm that are not paid out to shareholders as dividends but are either reinvested in the firm or are kept as reserve for specified purposes like paying off a debt or purchasing a capital asset. Retained earnings in an accounting period / earnings in that accounting period. Bic is a very interestingcompany for investors because as we can see since 2005 the retention ratio is decreasing; it is mean that the company give each year more money to its shareholders. It is true because as we have analyzed before dividends are increasing since the same year.3. In the futureThe business environment in 2008 will remain challenging especially if economic conditions soften in major parts of the world. BIC will remain focused on delivering quality and value to the consumer, as well as outstanding service to our retail customers. They also maintain the commitment to sustainable development, ensuring that all of the business activities are guided by both social and environmental responsibility. The company will continue to pursue their bolt-on acquisition strategy. These are acquisitions, such as PIMACO and Atchison Products, which fit strategically within the existing core businesses and allow them to leverage and build on their strengths in manufacturing, sales, marketing and distribution. Specifically, BIChave three strategic sales objectives:●in the stationery consumer business, maintain point-of-sale momentum and gain market shares;●continue to improve lighter growth rate in Europe, including the transition to child-resistant lighters, andfocus on value added products;●continue to strengthen the BIC Soleil brand and their global triple-blade one-piece portfolio to grow BIC’soverall shaver franchise.Risks and opportunities :In summary, they foresee the major challenges for 2008 to be:the reduction of trade inventories in the USA, mainly impacting stationery the shift of promotional products from stationery to other product segments, impacting our BIC Graphic business; the enforcement of the anti-dumping tax on flint lighters originating from China or Taïwan renewed in December 2007, and its possible extension to Asian circumvention countries foreign currency fluctuations; uncertainties of oil, energy and raw material prices; global economic and geopolitical environment.While many of these issues are outside of teir control, they will make every effort to minimize these risks in all aspects of our operations.Research and development :Research and development functions are organized by category. In 2007, there were approximately 142 employees located in Europe and North America in these functions. Each year, BIC invests approximately 2% of sales for research and development of new products that will drive sales growth. In 2007, new products and line extensions accounted for 24% of BIC Group sales.Performance goals :Sales growth, market share gains, margins, cash flow and a strong balance sheet are the principal indicators of the Group’s performance.They will focus on sales growth, developing products and product line extensions that strengthen the BIC brand equity and meet the unique needs of consumers in different parts of the world.ConclusionWith all the data we have analyzed we can make some conclusions and in a second point we will see if it is a good investment to purchase Bic share.The company can finance easily its current liabilities with its current asset so we can say that Bic can make good investment without a over indebtedness of its account. Moreover they have a really good development of these ratios with an improvement for most of them of between 2006-2007.The company can continue to invest easily in the future, thanks to these figures, it won’t block by bankers,and we can expect the continuity of the growth in next years because of these good results and of their improvement in the time, maybe this improvement will less important that it was forcasted due to the financial crisis and the Chinese competition.Now we want to know if Bic is a good investment, to have a great idea on the investment risk for a shareholder, we can use the Beta ratio that can inform on the sensibility of the group on a market. For BIC we find a result that reach 0.46. That is mean if the global profitability of the market, as CAC 40 for BIC, fluctuate by one 1%, a share holder can expect a fluctuant of 0, 46% on BIC shares.But to consider these results it’s necessary to take care of the systematic risk and the specific risk. Indeed the comparison between these two information offers a grade on the dependence of the profitability of share of the company face to market. If the specific risk is higher than systematic risk, that mean that the profitability of the company title didn’t depends a lot of the fluctuatio n of the market.For Bic, we find that the systematic risk is higher than specific risk, we can consider that the actions of Bic are not very dependent of the fluctuation of the market, but we have must be take care these information because of the quick variation on this sector. This non dependence can reinforce with the last crisis, the CAC 40 fall down and the Bic share price increased during this period, that show us the dependence of the Bic share.Strengths of the company are based on the global success all around the world. But thanks to this analysis, we have shown that the financial structure was strong and well manage for the future strategic plan of the company. This financial structure could permits to find external opportunities of growth because of the capacity of the company to invest in other companies to develop its portfolio. Indeed, in parallels, of its classical products, the company wants to develop its strategy in high added value products. Thanks to its actual financial structure, the group should realise these objectives of development. That is why investor should be confident in their money allocation because of the recent results and the increase of dividends.The main weaknesses can be considered on the structure of the market where Bic is acting. Indeed, the company is faced to a hard competition on its different markets, more over in paper producing and in shavers. A lot of large competitors are present on these markets, and are also well known for their proper competency, as Gillette.The second point is that the different markets are mature, and are not growing a lot. That is why Bic have to target this effort on external growing and the management of its internal financial data to be more competitive as possible in the future. Innovation and external growing are the key points to continue on the best way as possible.Investments are necessary to continue to be successful as today, but investor can be confident to put money on Bic because of the quality of its results actually on its internal numbers. The strategy is well done actually; an investment on Bic should be profitable on a short, medium and long term for shareholders. Specialists are estimating the dividends around 1.46€ in 2010 which is a very profitable thing to invest. With the graph below we can observe that all the indicator (MACD, moving average at short, medium and long term) forecast an increase on the share price maybe this one go to touch the resistance at 43.49 but it will go higher around 50 in 3 months.[1] The Europe region includes Western Europe and Eastern Europe[2] The North America and Oceania region includes the USA, Canada, Australia and New Zealand.[3] The Latin America region includes Mexico, Central America and South America.。