Public Limited Companies - Free Essay Example

Finance Introduction For the purpose of this research, two PLCs have been chosen, one from the UK and the other from China, together with two countries, one a developed and the other an emerging country. Chosen Public Limited Companies Umeco PLC. Umeco, based in Leamington Spa in Warwickshire, UK is involved in the aerospace and defence industries and has an international client base. The main tasks of the business are the provision of innovative methods for distribution, supply chain management, as well as repair and overhaul services. It is also involved with advanced composite materials, which are used within the same industries and have been extended to include wind energy, motor sport and other allied automotive and technological areas (Umeco website 2007). The company employs over 1,400 people in international locations throughout the world, including the UK, North America, and Europe. In addition, during the course of 2006 the business has sought to extend its presence in the Far East. To this end, it has established an agreement with an organisation in China for the formation of a new commercial business, which will assist in the servicing of its customers in that region. It can also be seen from th e Chairmans statement in the Annual Report (2006), that the company has engaged in a number of acquisitions throughout all areas of the business over the past twelve months. Figure 1 Umeco Results summary Source: Annual Report 2006, page 91 The five-year summary (see figure 1) shows that since 2004 the business has achieved a steady growth pattern in revenue, profits, and earnings per share, all of which show a year on year increase during that period. During the same five years the share price of the business has also risen from approximately 250 to 550, making it an attractive investment, particularly for the institutional investors, the top ten of whom own around 57% of the issued shares (see annual report, page 23). In order to fund the corporations 2006 acquisition programme, including that of Provest and Aeromedic Innovations, and to provide it with growth capital, a rights issue was launched in 2005, to which the business received 98.6% valid acceptances (see chairmans statement 2006). It is anticipated that this will provide for continued growth and added value in the future. China Unicom In 1994, the Chinese government set up the China United Telecommunications Corporation as a state owned enterprise within the telecommunications industry, serving citizens of the Peoples Republic of China. Although it started as a wireless paging and mobile operating service, it has expanded its interests to include a wide range of telecommunications services. In 2000, following the expansion of Chinas desire to attract international investment, the corporation set up a commercial public trading business named China Unicom. However, the Chinese based organisation from which it was founded still owned approaching 60% of the business (Annual report 2005, page 2), which has since grown to over 69%, with just below 20% held in Shanghai and the balance in the Hong Kong and NYSE markets. Figure 2 China Unicom financial performance 1999 2000 2001 2002 2003 2004 2005 Total Assets 453.7 1128.3 1279 1492.2 1498.4 1456.3 1426.3 Total Borrowings 201.3 356.5 442.7 530.2 543.9 461.5 345.8 Total Liabilities 343 547.2 653.9 824.1 802.2 728.2 663.4 Shareholders equity 85.4 572.2 616.8 662.5 696.2 728.1 762.9 EBITDA Margin 37.3% 46.2% 46% 45.8% 36.8% 34.1% 32.7% Profit Margin 4.8% 13.7% 15.2% 11.3% 6.2% 5.5% 5.7% Revenue 174.5 236.9 293.9 405.8 676.4 793.3 870.5 EBITDA 65.1 109.6 135.3 185.8 249.0 270.2 284.4 Profit 8.4 32.3 44.6 45.7 42.2 43.9 49.3 Cellular Subscribes (ten thousands) 415.4 1277.2 2703.3 4311.4 8083.3 11208.1 12779.4 Source: https://www.chinaunicom.com.hk/en/investor/highlights.html One of the problems that this distribution of shareholding creates is that, effectively, the corporation has to serve two masters, the state and the shareholder, which has led to its less than inspiring results over the past five years, as can be evidenced in figure 2. The financial results show that, despite the fact that revenue and subscriber levels have continued to grow significantly since 2001, the profit level in percentage terms has fallen, although this appears to have stabilised in 2005. The business has experienced difficulties throughout it trading life, particularly as a result of the government intervention in its activities in respect of the GSM products. As a result, it has sought to sell this area of the business back to the parent company in exchange for the acquisition of mobile licences throughout China (JP Morgan 2005). In April 2005, the company made an offer of 2.3 shares per ten trad able held, providing the major shareholder, China Unicom Group Co Ltd, was given the go ahead to floats its own majority shareholding. Chosen countries The UK, with a current population of around 60 million, has a high level of private ownership within its corporate and trading markets. With a GDP of over $2.3 trillion (World Factbook 2007), it is one of the leading economies of Europe. It is also one of the most popular countries for international corporate domicile (Monks 2000. p18). The London stock market is one of the worlds oldest, being able to trace its roots back over three hundred years, although the current form of the Stock Exchange was not opened until 1801. Since then, it has become one of the most important exchanges in the world. Unlike China, the UK financial markets and business corporations work on a shareholder system, with very little interference from the state in terms of control of operations, apart from their corporate governance procedures. As such, it allows a high level of inward and outward foreign investment. Until the later part of the 1990s, industry in China, being a communist country, was state owned. However, in 1997 the ruling party announced plans to sell off large stakes in many of these corporations to the public (Seth Faison 1997). Over the following few years, the country underwent a significant economic change in terms of its approach to capital markets, allowing investment and fund managers to operate within the country and access to their corporations, although initially through joint ventures. An increasing number of Chinese domiciled businesses also sought listings on the Hong Kong and New York stock exchanges as a way of attracting foreign capital for domestic and international growth. Over the same period, there has significant increase in the growth of foreign businesses operating within China, with such names as KFC, Adidas and MacDonalds amongst them. By 2006 China, with a population of over 1.3 billion, had become the worlds second largest economy behind the US, with a GDP in excess of $2.5 trillion and an annual growth rate of 10.5% (World Factboo k 2007). Despite initial fears regarding the level of state involvement in what is attempting to become a capitalist-based financial market, China has so far succeeding in combining the dichotomy for the moment. References JP Morgan (2005). China Market Strategy. Asia Pacific Equity Research. Retrieved 2 March 2007 from https://www.bolaninfo.com:8080/CMS/UserFiles/Pdf/JPM%20China%20Market%20Strategy20051106.pdf Faison, Seth (1997). In Major Shift, China Will Sell State Industries. New York Times, New York, US. World Factbook (2007). Peopleà ¢Ã¢â€š ¬Ã¢â€ž ¢s Republic of China. CIA. US. Retrieved 2 March 2007 from https://www.cia.gov/cia/publications/factbook/print/ch.html Our History (2007). London Stock Exchange. London, UK. Retrieved 2 March 2007 from https://www.londonstockexchange.com/en-gb/about/cooverview/history.htm Monks, Robert A.G (2000). Modern Company Law for a Competitive Economy: the strategic environment. Corporate Governance vol 8, No.1. UK Um eco PLC (2007). Company website. Retrieved 2 march 2007 from https://www.umeco.com/default.asp Life Style Extra (2007). Umeco Share Price Retrieved 2 march 2007 from https://www.lse.co.uk/ShareChart.asp?sharechart=UMCshare=UMECO_PLC_ORD_25P World Factbook (2007). United Kingdom. CIA. US. Retrieved 2 March 2007 from https://www.cia.gov/cia/publications/factbook/print/ch.html