1. Financial Reporting

2. What is it? Measure performance of business to guide decision making
Internal and external reporting
Different users…
- Management - Investors & analysts
- Banks - Employees
- Government - HMRC
- Others?
… focus on different things in the financial statements. 1

3. What does it look like?
Financial information generally comprises 3 primary statements:
Profit & loss account:- Measures financial performance over a period
Sales x
Cost of sales (x)
Operating expenses (x)
Tax (x)
Interest (x)
Net profit x
Balance sheet:- Indicates financial status at a point in time
Assets x
Liabilities (x)
Net assets x
Shareholders’ funds x
Cash flow statement:- Measures changes in cash over a period
Net profit x
+/- non cash items (x)
Operating cash (x)
Tax paid (x)
Interest paid (x)
Net cash flow x 2

4. How do we produce it and ensure accuracy?
Processes and systems in place to record financial information
Framework of internal control to ensure numbers are accurate
Consolidation across the business:
The Edrington Group
Whisky
production
Rum
production
Selling businesses
Blending and bottling
Scotland
SAP system
GBP currency
Dominican Rep
BPIX system
DOP currency
Americas, EMEA, Asia
SAP Intrepid
Every currency!
Review and audit of financial information 3

5. Internal financial reporting
Primarily to provide management with information on which to make business decisions.
Management identifies Key Performance Indicators (KPI’s) – the measurements which tell us whether we are operating profitably or not - and tracks actual performance against budgeted targets
KPI’s can be financial and non-financial. At Edrington we broadly separate financial KPI’s into three categories
Operational (making) Commercial (selling) Group (overall)
Whisky cost variances Cased contribution Consolidation
Supply chain variances - by brand & market Overheads
Logistics variances A&P spend Interest
Distillation production cost/loa - by brand & market Currency
Cask investment Taxation
Stock on hand S/holder return 4

6. KPI page 5

7. External financial reporting
Primarily to provide investors, banks and authorities with information on which to make their decisions.
Format of statutory reporting governed by law and accounting rules. For UK private companies, only annual report required.
Annual report requires to be audited by independent auditors
Tax returns are submitted to the HMRC together with the statutory financial statements.
Banks and private lenders request access to both internal and external financial information.
They are interested in ability of company to generate cash for loan repayment. 6

8. External financial reporting – bank covenants
Banks commonly use ratios to determine whether a company has sufficient profit and cash flow to meet its loan repayments. These are generally used to assess whether the “gearing” of the company is appropriate.
Simply put, gearing is the level of debt in a company, relative to net assets owned by shareholders (shareholders’ equity). A highly geared company will have a lot of debt, with minimal equity. It will need to generate significant profit to repay loan interest and is considered higher risk. This also applies to nation states!
Common ratios used to measure gearing are:
Net debt/EBITDA - EBIT/ Net interest
The bank sets targets for these ratios called covenants. If the company fails to meet the target, the cost of borrowing (interest) goes up, and the bank can ultimately decide to ‘call in’ the loan which could put the company out of business. 7

9. Anyone fancy a career in Finance?8