Introduction to Corporate Finance

what companies do

Bring your learning to life with interactive learning, study, and exam preparation tools that support the printed

textbook. CourseMate includes an integrated eBook, videos and quizzes, flashcards and more.

Express

FINANCIAL PLANNING

16-1 Overview of the planning process

16-2 Planning for growth

16-3 Planning and control

DAVID JONES TAKES STEPS TO UNLOCK LONG-TERM VALUE AND GROWTH

POTENTIAL

Following its 40% fall in profits for the 2012 financial

year, and the impact of a struggling domestic retail

market, David Jones conducted a strategic review

to identify ways of unlocking long-term shareholder

value, and took steps to ensure that it was able to

sustain its long-term growth potential.

Most of the slump in profits can be attributed

to the doldrums plaguing the retail market, which

saw sales fall by 4.8% to $1.87 billion for the year.

However, this was reinforced by rising costs, which

resulted in a slide in gross profit margin from

39.1% to 37.5%. To compensate for this fall in

profits and preserve long-term value, the company

implemented a dramatic cut in its final dividend to 7

cents per share – a reduction of 33.3% on its interim

dividend (10.5 cents per share) and 53.3% on its final

dividend for the previous year (15 cents per share).

As part of the strategic review, the company

obtained valuations for its flagship Sydney and

Melbourne city stores, which were valued in the

accounts at $460 million. These would be valued at

up to $612 million if DJs were to sell them and rent

them back (at an estimated annual cost of $39 million).

However, the strategic review suggested there could be

further gains that could be unlocked if these sites were

redeveloped, since they are situated in prime locations.

In September 2012, the company announced

limited details of this strategic review and revealed

its intention to spend the subsequent six months

reviewing structural issues, planning limitations, design

considerations and the trading impact of various

strategic scenarios that were under consideration.

Source: Adapted from Michael Janda, ‘DJs Looks to Real Estate Amid

Sales Slump’, 19 September 2012, http://www.abc.net.au/news/2012-

09-19/david-jones-profit-slumps-as-expected/4269432. To watch an ABC

news item about this David Jones profit issue or to listen to commentary

on David Jones’ CEO’s briefing to analysts providing insight into the

strategic and financial planning process undertaken by the company, go

to: http://www.abc.net.au/news/2012-09-19/david-jones-profit-slumps-

as-expected/