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UNIVERSITY OF NORTHAMPTON

FACULTY OF BUSINESS AND LAW

FINANCIAL DECISION MAKING

FINM036

ASSIGNMENT

REPORT ANALYZING THE PERFORMANCE

AND OPERATIONS OF BILLINGTON

HOLDINGS PLC

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Table of Contents

Introduction…………………………………….………………………………………………….3

Company Overview………………..……………………………………………………………3-4

Equity Holdings………………………………………………………………………………….4-5

Statement……………………………………………………………………………….………….5

Competitor…………………………………………………………………………………………6

Financial Ratios Analysis………………………………………………………………………….7

Profitability Ratios………………..……………………………………………………………..7-8

Efficiency Ratios……………………………………………………………………………..…8-9

Liquidity ratios…………………………………………………………………………..…….9-10

Gearing Ratios…………………………………………………………….………………….10-11

Corporate Governance Compliance……………………………………………………………..12

Compliance……………………………………………………………………………………12-13

Proposed Financial Strategies…………………………………………………………………….13

References…………………………………………………………..………………………..14-15

Appendix 1……………………………………………………………………………………….16

Appendix 2……………………………………………………………………………………….17

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Introduction

This statement is a financial analysis of the Billington Holdings Plc, the organisation is

listed on the Alternative Investment Market (AIM) in the London Stock Exchange, the ratios for

the past 5 years will be analysed, which will include profitability, efficiency and liquidity.

Moreover, the company will be compared with a competitor within the same industry, namely

Sigmaroc Plc. Therefore, the analysis will inform the development of the company’s vision and

strategic financial goals as it anticipates on becoming a FTSE 100 company in the near future.

Lastly, the company’s corporate governance compliance and brand impact and reputation will be

evaluated. Consequently, the comprehensive report will aim at creating financial strategies for the

company to become a FTSE 100 company and dominate the construction and materials industry

in the UK.

Company Overview

The company is located in South Yorkshire, United Kingdom, and operates within the

construction services, construction equipment, and building subcontractors sector (Lse, 2019).

Billington Holdings was established in 1989, and the stock were listed on the London Stock

Exchange under the ticker BILN on November 3, 2000. The company operates several

subsidiaries, including Billington Structures Limited and Peter Marshall Steel Stairs Limited,

which predominantly focus on the structural steelwork manufacturing and design (Marketline,

2020). In addition, the other subsidiary is Easi-Edge Limited, which provides safety solutions and

barrier systems to the building sector. Notably, the company is also involved in the manufacturing

of underground tunneling, road heading equipment, and the construction of schools and power

stations ((BILN, 2020). In this regard, the organisation has become one of the UK’s leading

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structural steelwork contractors because of its nearly 70 years’ professional experience within the

industry.

The company has a workforce of nearly 379 individuals, and the chief executive officer is

Mark Smith, who has to lead the company since 2015 ((BILN, 2019). Because of this experienced

and skilled labor force, the company is capable of producing complex structures over 12000

tonnes. Moreover, the organization has steel plants in Barnsley and Bristol, which can produce

nearly 35,000 tonnes of fabricated steel per year. The company also can service the UK market

and other strategic markets within the European Union. Additionally, the company has the capacity

and expertise to provide edge protection solutions and safety barriers for its customers’ labor force.

As expected, the company is also a leading fabricator of steel staircase for residential, domestic,

and commercial buildings within the UK. Therefore, due to its presence and vast experience in the

construction sector, the company has a competitive edge against other players in the industry.

Equity Holdings

The Billington top ten shareholdes are summarised in the table below based on the amount

of equities held and percentage of ownership. The top ten shareholders hold 87.16% of the total

equity whereby the instituional stockholders and individual stockholders account for 80.99% and

6.17% respectively.

Name Equities %

Gutenga Foundation 5,942,985 46.2%

Close Asset Management Ltd. 1,245,000 9.68%

Otus Capital Management Ltd. 1,000,000 7.78%

Billington ESOP 893,719 6.95%

GPIM Ltd. 638,020 4.96%

Cavendish Asset Management Ltd. 371,250 2.89%

IG Markets Ltd. 325,000 2.53%

John Stuart Gordon Non-Executive Director 282,270 2.19%

Andrea Jean Hardie 256,000 1.99%

Kathryn Jane Garnett 256,000 1.99%

11,210,244 87.16%

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The Billington equity holding are summarised below.

Votes Quantity of stock Float Company-owned shares Total Float

Stock A 1 12,860,959 4,496,866.0 35% 0 0.0% 34.80%

Stock B 1 73,368 0 0% 0 0.0%

Statement

The Chairman’s statement reveals that Billington achieved impressive performance

evidenced by substantial progress across all divisions regarding the growth in revenues and profit

before tax as well a strong balance sheet (Annual Report, 2019). The CEO statement validates that

the company reported strong performance and presents the operational review of the Billington

Structures, Shafton Steel Services, firm’s commitment to health, safety, sustainability, people as

well as the steel industry and prospects and outlook (BILN, 2020).

Competition

One of the key strategic competitors of Billington Holdings PLC is Sigmaroc PLC. Both

companies operate in the construction material space within the UK and the European Union.

Notably, Sigmaroc PLC is registered in AIM and has a deliberate understanding of the construction

material industry. The company’s Chief executive Chairman is David Barret, who has incorporated

a solid strategy and operational expertise within the sector. As a consequence, the company proves

to be a worthy competitor to Billington holdings PLC (Sigmaroc Annual Report). Both companies

have tapped into their pool of experienced and skilled labor force to remain dynamic and

competitive.

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Theorectical Basis

Billington has been experiencing considerable growth in the financial performance as

evidenced by revenues and high profits. This can be attributed to the firm's strengths that include

delivery of diverse projects across varied sectors, like distribution, high-end residential, leisure.

Another strength is the strong reputation in the market, which has led to the record order books

that encourage a pipeline of opportunities. In addition, the company's strengths are the cost savings,

low debt financing, higher efficiency in production, strong liquidity, and capital positions. The

Group is well-positioned delivers higher growth in the future, but the main weaknesses are limited

product offerings, minimal international presence, higher input costs, and other expenses. The

external environment consists of promising prospects of growth in the industry that offer various

opportunities that can drive the company's growth in the future. They include responsible sourcing

and sustainable supply chains, global trade, pioneering technological advancements, the advent of

the circular economy, and UK Export support mechanisms. Finally, several threats pose a threat

to the company, such as fluctuations and volatility in steel prices as well as the Depletion of high-

grade raw materials (Lambotte et al. 2018). The UK's departure from the EU leads to interruptions

of supply, pressures on solid waste management, and an increasingly competitive environment that

could hinder the future growth of Billington Holdings.

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Financial Ratios Analysis

Profitability Ratios

These ratios are used to indicate an organisation’s ability to generate profits from existing

operations. Thus, the focus is predominantly on the company’s return on investment from

inventory or assets. The information is critical, especially for investors who seek information on a

company’s profitability capacity. Billington Holdings’ profitability over the past five years will be

analysed using the gross margin, profit margin, return on assets, and return on equity ratios.

2014 2015 2016 2017 2018

Profita

bility

Ratios

Gross

Margin

Billington

Holdings

38.76% 36.26% 38.41% 35.63

%

35.51

% Sigmaroc PLC 66.22% 99.89% 94.51% 21.99

%

27.73

%

Net Margin Billington

Holdings

3.20% 4.31% 4.69% 4.77% 5.24

% Sigmaroc PLC -80.20% -2.80% -6.68% 1.31% 8.78

%

Return on

assets

Billington

Holdings

5.40% 7.48% 8.30% 8.64% 9.09

% Sigmaroc PLC -125.20% -359.61% -706.29% 0.44% 4.31

%

Return on

Equity

Billington

Holdings

10.10% 14.93% 15.80% 15.94

%

17.27

% Sigmaroc PLC -242.97% -404.03% 168.09% 0.70% 6.69

%

Since 2014, Billington has seen a considerable growth in performance owing to consistent

investments and improved business environment, as evidenced by high profitability ratios relative

to the Sigmaroc PLC and industry margin averages. The gross margin declined since growth in

revenues (71.31%) was higher than gross profit (56.94%). The revenues increased primarily due

to the surge in Billington Structures output. At the same time, gross profit declined at a slower rate

due to pricing pressures, the uncertainty of ongoing and uninterrupted supply of products.

Contrastingly, the net margin increased since net profit increased by 180.21%, which was

considerably higher than the 71.31% increase in revenues. In 2018, the revenue raised to £77.3

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million (2014: £45.103 million), and profit increased to £4.05 million (2015: 1.45 million) both

are record values (Annual Report 2018). The ROA and ROE also increased substantially since the

net profit growth surpassed the increase in total assets (66.67%) and owners’ equity (63.95%).

This is attributed mainly to the successful delivery of diverse projects across a significant number

of sectors, like distribution, education, commercial, high-end residential, sports, and leisure. The

firm recorded remarkable performance across all divisions, as evidenced by record order books,

promising pipeline of opportunities, and costs savings. The Group is well-positioned deliver higher

growth in the future.

Efficiency Ratios

Efficiency ratios are used in measuring Billington’s ability to utilize its asset base and

manage short-term liabilities effectively by assessing how efficiently the Group uses its assets in

generating sales revenues while managing assets (McLaney and Atrill, 2018). The Group’s

efficiency will be analyzed using the inventory turnover, asset turnover, and accounts

receivables turnover ratio and compared to its competitor and industry average.

2014 2015 2016 2017 2018

Inventory Turnover Billington Holdings 3.26 3.42 3.95 4.30 4.15

Efficiency

Ratios

Sigmaroc PLC n/a n/a n/a 4.76 6.15

Asset Turnover Billington Holdings 1.69 1.74 1.77 1.81 1.73

Sigmaroc PLC 1.56 0.13 0.11 0.33 0.49

Receivables Turnove

r

Billington Holdings 8.88 10.68 11.35 12.90 10.27

Sigmaroc PLC 5.18 1.36 0.23 5.80 6.38

In the past five years, the Group recorded an increase in efficiency in the management of

the inventory, account receivables, and total assets, as illustrated by the steady rise in all efficiency

ratios. Billington outperformed Sigmaroc PLC and industry in terms of the asset turnover and

accounts receivables turnover but, the inventory turnover was slightly below the peers in the

industry. The inventories, accounts receivables, and total assets increased by 42%, 48%, and 67%

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as the business enjoyed an increase in activity levels in the past five years. Thus, the accounts

receivables turnover increased from 8.9 to 10.27, which means that the Group is now collecting

its receivables more than ten times annually. The upward trend denotes higher efficiency that is

favorable from the cash flow viewpoint since the cash is collected sooner and is used in settling

obligations. Likewise, the increasing inventory turnover means that the Group is efficiently

controlling its merchandise and effectively selling its inventory. But, in 2018, there was a slight

decline in inventory turnover due to the UK’s imminent departure from EU and the allied

uncertainty that has undoubtedly presented challenges in the supply of products since the Group

sources some of its products from Europe through subcontractors and suppliers

Liquidity Ratios

The liquidity ratios are used in the measurement of the Billington’s capacity of meet its

current debt obligations by paying off its current liabilities once they are due (Fridson 2011). The

Group’s liquidity will be appraised using the cash, current, and acid test ratios.

2014 2015 2016 2017 2018

Liquidity

Ratios

Current Ratio Billington 1.43 1.34 1.43 1.49 1.47

Sigmaroc 1.69 0.98 0.19 1.50 1.75

Acid Test Billington 0.74 0.57 0.77 0.83 0.86

Sigmaroc 1.69 0.98 0.19 1.08 1.19

cash ratio Billington 0.32 0.19 0.40 0.48 0.47

Sigmaroc 0.60 0.12 0.10 0.65 0.44

The liquidity analysis demonstrates that the Group’s liquidity increased in the last five

years since the cash, current, and acid-test ratios increased considerably. However, the current and

acid-test ratios are lower than Sigmaroc PLC and industry average. In terms of the cash ratio,

Billington Holding outperformed Sigmaroc PLC and peers in the industry. The increasing liquidity

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rations can be attributed to the fact that the increase in current assets (66%) surpassed the growth

in current liabilities (61%). The 66% increase in current assets included the increase in inventories,

42%, trade, and other receivables 48%, as well as growth in cash balances (140%). Whereas, the

total rise of £7,457, 000 in current liabilities mainly comprised a growth in trade and other payables

following a considerable increase in the activity levels. In 2018, the Group reported net cash

inflows amounting to £1.20 million resultant in gross cash balance worth £9.30 million, meaning

that the company has adequate funds to cover its working capital requirements along with funding

opportunities as soon they arise in the future.

Gearing Ratios

The gearing ratios are used in measuring the financial leverage of the Group by assessing

the degree of the interest-bearing liabilities in the company capital structure (Subramanyam 2014).

2014 2015 2016 2017 2018

Gearing

Ratios

Debt to

equity (D/E)

Billington 1.95% 15.22% 10.67% 8.73% 6.40%

Sigmaroc 40.70

%

123.53% –

123.80%

61.52% 55.24%

Interest

coverage

Billington 82.57 118.62 173.86 260.47 86.22

Sigmaroc 39.61 311.14 210.05 7.82 -10.92

Debt to assets Billington 1.04% 7.63% 5.60% 4.73% 3.37%

Sigmaroc 20.97

%

109.95% 520.18% 38.09% 35.58%

The Group’s debt to equity and debt to assets ratios increased in 2015; since then, the ratio

has declined from 15.22% to 6.40%. The debt to equity and debt to assets metrics are much lower

than the Sigmaroc PLC and industry average, which implies that the company uses less debt

funding relative to peer companies in the industry. In 2018, the debt to equity and debt to assets

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were 6.40% and 3.37%, which implies the liabilities account for only 6.40% of the equity and

4.37% of the total assets. Since 2014, the non-current debt increased by 437.63%, while the

owners’ equity increased by 63.95% (Annual Report 2013). But, the higher interest coverage ratio

proves that Billington can service its debt because the company is making sufficient money to pay

its interest as well as principal payment on existing debt. The interest average ration is too high,

meaning that the company can offset interest on debt with no chances of defaulting. The

conservative funding policy signifies that the company has lower financial risks to debt funding

and higher costs of servicing the debt in comparison to the peers in the industry (Editorial, 2020).

The analysis of the gearing ratios denotes that the company uses investor funding and a modest

level of debt to invest in the Group’s factories and sites to ensure that the company continually

improve its operational and financial performance.

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Corporate Governance Compliance

Good corporate governance is one of the core values upheld as it is a requirement in the

standards of the AIM-listed entities. The Group has undertaken a serious approach in safeguarding

that the Board of directors applies the Quoted Companies Alliances Corporate Governance Code

that is used in the regulation of the Small and Mid-sized Quoted Companies (Quoted Companies

Alliance 2013).

Compliance

The evidence of compliance with the corporate governance standards involves the

separation of the role of the CEO (Mark Smith) and Non-Executive Chairman (Ian Michael

Lawson) (Mallin 2013). The Chairman is accountable for leading the Board, facilitating the

contribution of members, and ensuring that the Board operates in the shareholders’ interest. The

CEO is liable for business leadership and the implementation of the core strategy. The Board

comprises of two (2) Executive and three (3) Non-Executive Directors, and the Board chair is the

Non-Executive Chairman; hence, the representation of the Non-Executive to Executive Directors

in the company’s Board is 60% and 40% respectively. According to Thornton (2018), The Board

meets officially 11 times yearly and on ado basis if necessary. In the past fiscal year, the board

attendance was Mark Smith (11/11-100%), Trevor Taylor 11/11-100%), Peter Hems (11/11-

100%), John Gordon (10/11-91%), Doctor Ospelt (2/11-18%), and Stephen Wardell – 0/0

(appointment January 2019). However, the company does not observe gender and diversity since

the Board consists of 7 with no women representation on the company’s Board. The Non-

Executive Directors are viewed by the Board as independent of the company’s management as

they bring experience welcomed by Executive Directors. Consistent with the corporate governance

structure, the Board has formed an Audit and Remuneration Committees. As a result, Billington

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Holdings’ adherence to corporate governance standards has had a positive impact on the Billington

brand and reputation in the steel industry (Billington Holdings PLC. 2020).

Proposed Financial Strategies

The company should focus on improving the production methods using the latest

technologies and increasing the contributions from in-house manufacturing of its products to

ensure that Billington Structures and Shafton Steel Services are operating at the near