Objectives of the analysis (1 slide common)

What questions would we like to

have answered?
What info is vital to the decision at
hand? (table with lines of data from
the textbook)

Whos ALRO
Producing over 200,000 metric tonnes of primary
aluminium,Alrois the largest aluminium smelter in Central
and Eastern Europe (excluding CIS). Alrois one of Romanias
largest companies with an important contribution to the local
and national economic development. The company is part of
the 7th largest aluminium producer worldwide, Vimetco NV,
which has operations in Romania, China and Sierra
Leone.Alro'sshares are traded on the Bucharest Stock
Exchange.
Vimetco is a globally integrated aluminium Group,
with bauxite mines in Sierra Leone, coal mines,
aluminium production and processing facilities and
electricity plant in China and with alumina refinery and
aluminium smelter in Romania.

World aluminium market

Today, aluminium ranks number
two in the consumption volumes
among all the metals, surpassed
only by steel. In the coming
decades the demand for the
aluminium
will
continue
increasing at greater rates due to
the recent developments in the
motor industry, the rapid growth
of cities and new potential uses
of aluminium as a substitute to
copper in the power industry.

Supply and demand

The aluminium market consists of the producers of
primary aluminium and its alloys the upstream
segment, the producers of aluminium products the
downstream segment and the producers of
aluminium out of processed raw material (aluminium
recycling). To produce aluminium we need to mine
bauxite, process it into alumina and deliver it to an
aluminium smelter. The world's largest aluminium
producers are, as a rule, vertically integrated holding
companies comprising bauxite mines and alumina
refineries. The advantage of the vertical

integration
model
for
large
companies is their independence from
price fluctuations and many other
external factors, as they can ensure
the supply of raw materials in
On
average,
world
aluminium required volumes is secured for
demand grows 5-7% annually. For uninterrupted aluminium production.
example, the global consumption of Small producers, on the other hand, procure raw
primary aluminium in 2014 grew 7% materials from outside suppliers.
when
compared
with
2013

amounting to 54.8 million tonnes. And

based on data in 2015, world demand is expected
to increase by additional 6% amounting to 58
million tonnes.The largest volumes of aluminium
are used by the transportation and construction
industries in 2014 they accounted for 27% and
25% of consumption respectively. The aluminium
alloys are used to make parts of airframes, parts of
car and train bodies, parts of fuel systems,

Main drivers of change

1. Higher energy prices
2. Arrival of new players
Starting in the late 1960s, the Six
Majors share of primary aluminium
production
started
to
decline,
reflecting the entry of new private
producers, conglomerates and of
partly
or
wholly
state-owned
enterprises.
3. Exchange rates
4. Shifting trend in aluminium cost
curves
Due to: technology, lower energy
prices, appreciation of the US dollar,
stable/weaker alumina prices
5. Emerging economies

Industry benchmarks

P/E

ROE
%

Div.
Yield %

Long-Term Debt
to Equity

Price to
Book
Value

Net
Profit
Margin %

Price to
free cash
flow

Basic
materials

17,2
3

6,30

4,27

49,80

2,89

1,28

4,13

Aluminiu
m

0,00

0,00

0,82

21,26

2,07

-3,00

-20,30

Assets structure
Current assets

2014

2013

4%
7%
20%
0%
2%
6%
39%

3%
7%
21%
1%
2%
5%
38%

Non-current assets

2014

2013

Plant and equipment

Property
Intangible assets
Financial investments
Long financial derivatives
Deferred tax assets
Other non-current assets
Total non-current assets
Total assets

28%
3%
0%
19%
4%
5%
2%
61%
100%

31%
3%
0%
21%
5%
2%
62%
100%

Cash and cash equivalents

Accounts receivable
Inventories
Deferred tax assets
Short-term financial derivatives
Restricted cash
Other current assets
Total current assets

Liabilities and stockholders` equity structure

Current liabilities
Short-term loans
Short-term financial leasing liabilities
Short-term allowances
Accounts payable
Short-term financial derivatives
Short-term subsidies
Other current liabilities
Total current liabilities

Long-term liabilities
Long-term loans
Long-term financial leasing liabilities
Long-term allowances
Post employment benefits
Long-term subsidies
Other long-term liabilities
Total long-term liabilities
Total liabilities

Stockholders` equity
Share capital
Share premium
Other reserves
Retained earnings
Profit (or loss) for the period
Total S.E.
Total liabilities and S.E.

2014

2013

30%
0%
0%
10%
0%
6%
46%

1%
0%
9%
0%
0%
5%
16%

2014

2013

4%
0%
0%
2%
1%
0%
6%
52%

24%
0%
0%
1%
1%
0%
27%
43%

2014

2013

16%
4%
14%
19%
-5%
48%
100%

44%
4%
15%
0%
-6%
57%
100%

Income statement
Net sales
Cost of goods sold
Gross profit

Selling, general and administrative

expenses
Depreciation and amortization
Other income
Other expenses
Earnings before income taxes

Interest expenses
Earnings (or losses) from financial
derivatives
Other net financial earnings or losses
Net exchange differences
Result before tax

Tax on income
Profit (or loss) for the period

2014

2013

100%
92%
8%

100%
98%
2%

6%
1%
1%
0%
2%

7%
6%
0%
1%
-11%

3%

3%

-7%
0%
-3%
-11%

6%
1%
1%
-6%

6%
-5%

0%
-6%

Liquidity ratios
Short term
liquidity

201
4

201
3

Current Ratio

0,84

2,36

Quick (or acid)

Test

0,41

1,07

Cash Flow

0,08

0,42

One of the major variations that

occurred in 2013-2014 is the increasing
of short-term loans from 1% to 30% of
total
liabilities and stockholders`
equity.

The
short Ratio
term liquidity got a lot worse during 2014 because mainly the transformation
Liquidity
of long term debts into short term debt and also, because of an increase in debts of
around 200 mil RON. Both current ration and acid test indicate deterioration of short
term liquidity, also the cash flow liquidity ratio show the fact that the operational cash
flow turned negative in 2014.
So the increase in debts is mainly for sustaining operational cash flow as well as the
increase in operational cycle shown bellow and is based on contracting a revolving credit
in December 2013 with a maturity on December 2015.
The
operational
ratios
show
increase in collection period as
well as in days inventory held.
Therefore the slower operational
cycle needs to be sustained by
increasing payments term towards
suppliers, increasing commercial
debt.

Operating
efficiency

2014 2013 %

Average Collection
Period

29,3

27,6

Days Inventory Held 82,5

89

Days Payable
Outstanding

44

35,5

Key financial ratios (II)

Capital structure and long term solvency:
Debt Ratio: total liabilities/total assets
Long-Term Debt to Total Capitalization: long-term debt/(long-term debt
+ stockholders equity)
Debt to Equity: total liabilities/stockholders equity

Profitability:

Gross Profit Margin: gross profit/Net sales

Operating Profit margin: operating profit/Net sales
Net Profit Margin: net earnings/net sales
Cash Flow Margin: cash flow from operating activities/net sales
Return on Total Assets (or ROI): net earnings/total assets
Return on Equity: net earnings/stockholders equity
Cash Return on Assets: cash flow from operating activities/total assets

Key financial ratios (III)

Market measures:

Earnings per share = net earnings/average shares outstanding

Price-to-earnings ratio = market price of common stock/earnings per share
Divident payout = dividents per share/earnings per share
Divident yeld = Divident per share/market price of common stock

Investment potential:
Du Pont System: net profit margin x total asset turnover = return on inv.
return on inv. x financial leverage = return on equity
Where
Net profit margin = net income/net sales
Total asset turnover = net sales/total assets
Return on inv. = net income/total assets
Financial leverage = total assets/stockholders equity
Return on equity = net income/stockholders equity

Credit assessment:

Times Interested Earned: operating profit/interest expense

Cash Interest Coverage: (CFO + Interest paid + taxes paid)/interest paid
Fixed Charge Coverage: (operating profit + rent expense)/(interest expense + rent expense)
Cash Flow Adequancy: cash flow from operating activities/(capital expenditures + debt repayments +
dividends paid)