Discussion On Fortescue And ANZ Bank: CSR And EPS Analysis

Fortescue

This report will include a discussion of two Australian Companies namely Fortescue and Australia and New Zealand Banking group limited (ANZ Bank), their activities, products & services, the company’s achievements and their earnings per share (EPS) for the last five years and how corporate social responsibility (CSR) affects the EPS ratings. The EPS concept will also be explained, how useful it is in the two organizations and the methods used to calculate it.

Fortescue is a mining company that was founded in 2003; Fortescue Metal Group Ltd (2018) .It has been involved in both discovering and developing iron ore deposits in various parts of the world. Their main aim being to be the safest cost effective mining company and in so doing become the most profitable. Its headquarters are located at Perth, west of Australia. Their main achievement has been their longstanding relationship with their customers since first ore shipment to being one of the leading iron ore suppliers to the larger Middle East countries.

Its corporate social responsibility policies are channeled through three core areas namely; Setting high standards where they do this through the preservation of Aboriginal heritage, championing diversity, encouraging integrity and ensuring safety; Creation of positive change which is achieved through the empowerment of Aboriginal people and abolishment of slavery; Safeguarding the environment and here they target to achieve this through the management of water resources, protection of bio-diversity as well as reducing greenhouse gas emissions and waste.

Empowerment is at the core of forteescue approach to corporate social responsibility initiative, this is demonstrated by its ability to empower individuals and the community to find innovative solutions to the most complicated business and societal challenges. Fortescue tries to find ways of improving the business bottom-line whilst impacting positive change in the community.

 The Australian and New Zealand banking group limited, which is commonly preferred as ANZ Bank offers a wide range of financial services and is among the top 4 banks in Australia and also among top 50 banks globally. ANZ Bank was established more than 180 years ago and it was initially as Bank of Australia in the year 1835. It operates in 34 markets globally. ANZ Bank main activities mainly affect saving and investing money for customers and making payments for customers. The bank has been operating for many years and offer full range of banking products and services. They range from managing cash flows to aiding in financing complex deals. The products they offer include financing, transaction deals, investing, risk management, insurance & superannuation and international services & FX. ANZ Banking group has a chief executive officer, the executive committee and board of directors in its organizational structure. The Board of directors oversees the financial operations and performance.

Corporate social responsibility policies

The ANZ Bank group has had numerous achievements the recent ones include being identified as Bank of the year for CANSTAR’S in 2018 agribusiness; it was also named No. 1 Institutional Bank in Australia. According to a study by Greenwich Associates Large Corporate Banking the banking group retained fourth position Asian Corporate bank

Fortescue CSR reporting has been voluntary over the past years. Engaging in CSR essentially means that in the course of business a firm operates in ways which enhance the environment without harming it negatively. Youngtae (2012) indicated that the market value of companies that show responsible behavior towards the society would increase which would gradually increase their financial performance. There is positive relationship between corporate governance and the firms overall performance, Cliffford (2011).

Fortescue CSR policy is referenced on the major 3 key pillars of; creation of positive change, setting of high standards and safeguarding the environment, Fortescue Metal Group Ltd (2018).In regards to setting high standards, Fortescue in it CSR reporting for the financial years 2018 indicated that they had achieved the targeted 0% fatalities of its workforce in the line of duty. This was achieved through the safety measures put in place. Such measures motivate the workforce to increase their output for the benefit of the firm. In terms of diversity, they reported that they had increased the level of women employment rate to 17.4% from their 25% target. In response to preserving of Aboriginal heritage, Fortescue reported that in 2018 they had caused 0 reportable heritage incidents.

 In regards to creation of positive change; the Fortescue CSR report indicated that 7.5% of the total procurement was form Aboriginal business from the targeted level of 10%.Also 14.1% of the employed workforce was of Aboriginal people form their targeted percentage of 20 by 2022.Fortescue had also targeted an active engagement in human right issues in the business sector a program that is currently ongoing Fortescue Metal Group Ltd (2018). In relation to safeguarding the environment, the CSR report indicated that they had increased their water use efficiency as they had targeted.The report also shown that they had achieved a 15% reduction in emissions in electricity generation from the levels of 2015, they also managed to reduce 3.7% of emissions intensity in energy consumption in the production process from the 2017 levels

ANZ Banking limited

ANZ Bank has a corporate social responsibility framework which focuses on the following 3 core areas. They include sustainable growth, fair & responsible banking and social & economic participation. There are also standards adopted by the bank CSR reporting which is mainly through three areas. The first one is environmental sustainability wick looks to support households, businesses and financial practices that aid in improving a sustainable environment. The second is housing where the firms aim at improving the availability of affordable and suitable options for housing for all Australians and New Zealand people. The third is financial wellbeing. It is important for the employees, customers and the community for their financial wellbeing to be improved and this is done through helping them make the best decisions with their money. This idea is supported by Westpac Banking Corparation (2009) which details CSR as an initiative that results in saving costs.  By 2018 ANZ bank was able to reach more than half a million people through financial education program, saver plus, money minded and matched savings program

ANZ Banking group

Earnings per share can be explained as the part of the firm’s profit that is allocated per share of common stock. According to Madhani (2016), earnings per share were a reflection of a company. If it increased it would not only reflect in the stock exchange price but also in the dividend cover and earnings yield. Graves (2010), illustrated that EPS was a potential source for analysts to predict future earnings more precisely. EPS is basically calculated as follows:

EPS = net income/ average outstanding common shares.

Hence the lower the number of common shares the higher the EPS. However companies have both the preferred stock and the common stock thus it’s of importance to note that all dividends paid to the preferred stock must be deducted from the net income before calculating the EPS.

Thus: EPS = net income – (dividends on preferred stock) / average outstanding common shares.

There are basically three types of EPS numbers that is based on where the data is derived from. They include; trailing EPS based on numbers of the past years, current EPS which is based on the current numbers and forward EPS that is based on future numbers which act as projectors.

Fortescue Metal Group

Earnings per share basic growth for the mining company have taken an upward growth from 2014 to 2018 with minimal trenches along the line. In 2014 the earnings per share were at 0.96 before dropping to an all-time low of 0.12 the following year. With increased corporate social responsibility the earning per share increased by a massive 255.32% in 2016 to reach at 0.43.This was linked to the increased corporate governance as well as the increase in world market price for iron ore.In 2017 the company underwent another increase in the earnings per share by 105.53% to reach at a staggering 0.89, the following year 2018, the earnings per share decreased to 0.36 representing a -59.22% decline form 2017.This was majorly attributed to the fall in world market prices for iron ore Fortescue Metals Group LTD (2019).This is clearly illustrated in the graph below:

ANZ Banking limited

The values of earnings per share for ANZ Bank limited have been varying for the last 5 years.

SHARE INFORMATION	2014 ($m)	2015 ($m)	2016 ($m)	2017 ($m)	2018 ($m)
(per fully paid ordinary share)
Earnings per share (cents)	267.1	271.5	197.4	220.1	221.6

Table 1.2 ANZ Banking Limited EPS comparison for the last five years

The changes as shown are affected by a number of factors one of them being the corporate social responsibility reporting over the years. According to Reinig (2009), communications about CSR that is CSR reporting to stakeholders yields positive results in share prices and hence the earning per share at ANZ Bank limited. The EPS increased from 2014 to 2015 by 1.65% which can be explained by most of 2013 CSR targets being achieved in 2014 and 2015. In 2016 the EPS went down and this was due to a number of factors including the new CSR targets that were formulated by the bank which were then realized in both 2017 and 2018 which resulted in 11.5% and 0.68% increase in EPS respectively.

Earnings per share

According to Pei-Yuan (2018), communication about CSR to stakeholders yields positive results in share prices in their study which can be clearly shown from studying the ANZ Bank and Fortescue mining company. The public is accepting organization’s communication about the CSR policies for marketing purposes to ensure maximum profits are realized, Turker (2009). This is one of the reasons why as the years progress and the CSR polices become more developed, the more positive results are yielded when it comes to EPS. Concetta(2012), examines attributes of CSR reporting in Australia four major banks among them the ANZ Bank limited, as a reaction to new legislation. This clearly depicts that CSR reporting is a significant factor in Australian organizations. Recently however, organizations’ responsibilities have pushed the impact of the operations they undertake to the society, Reinig (2009) and that is why Australian and international organizations are keen to ensure CSR target are projected and achieved. However Australian and international organizations should increase interactions between them and the entire stakeholders group affected by CSR issues. It’s is to be noted that firms that have taken corporate governance in a serious and comprehensive manner have increased their financial position holding other factors constant, for instance Fortescue Metals Group increased their net income in the year 2016 holding the fact that the world market prices for Iron ore were not constant. The policy of ensuring safety of its workers acts as a motivation

to the workforce to increase the labour output ratio and hence firms should emulate this so as to increase their net incomes.

References

Clifford,O & Torbira,  LL (2011) Corporate Governance and Firm Performance in Nigeria. 1(4).pp 36-40.

Concetta,.C.M.M.&.S.V., 2012. Corporate Social Reporting in European Banks:The Effects on a Firms Market Value. Corporate Social Responsibility and Enviromental Management, 19(3), pp.159-77.

Fortescue Metal Group Ltd, 2018. Corporate Social Responsiblity Report. Adelaide Terrace.

Fortescue Metals Group LTD, 2019. The Wall Street Journal. [Online] Available at: quotes.wsj.com/AU/XASX/FMGfinancials/annuals/income-statements [Accessed 27 Janaury 2019].

Graves, J.A.L.R.D.&.R..M., 2010. Forecasts on earnings per share. Possible sources of anaylst superiorityand bias, (6), pp.501-17.

Madhani, P.m., 2016. Intellectual Capital (IC) Intesity vs. Capital Intesity:Impact on Corporate Governance and Disclosure Practices of Firms. SCMS Journal of Indian Management, 13(4), pp.62-81.

Pei-Yuan,.K.C.C.&.C.X.O., 2018. Long Range Planning. Corporate Communication Network and Stock Price Movement, 5(2), pp.27-35.

Reinig, C.J.&.Carol, A.T., 2009. Issues in Social and Environmental Accounting. Corporate Social Responsibility Issues In Media Realeases:A stakeholder Analysis of Australian Banks, 2(2).

Turker, D., 2009. Measuring Corporate Social Responsibilty. Journal of Business Ethics, 85(4), pp.411-27.

Westpac Banking Corparation, 2009. [Online] Available at: htttp://www.westpac.com.au [Accessed 28 January 2019].

Youngtae Kim, M.S.&.B.W., 2012. Is Earnings Quality Associated with Corporate Social Responsibility. The Accounting Review, 87(3), pp.761-96.