The growth in business over the years have been occurring in tremendous rate which can be attributed to a better corporate structure and innovations which have taken place in a business environment. Business in every field has been affected by technological advancements and have reaped the benefits of such developments. However, it is also to be recognized that technological developments also breed scandals which are due to unethical practices of certain persons or management itself. In recent times scandals in business which can be accounts related or even related to other issues have increased over the years.
The main purpose of this assessment is to analyze the financial statements of Iluka Resources ltd for the year 2018. The assessment will be considering the financial performance of the business for the year with the help of annual reports of the business. The assessment will be considering any scandals which the company is related to and how the same affects the financial performance and reputation of the business (Magee et al. 2013). Lastly the assessment will be providing recommendation as how to improve the business structure of the company.
Iluka Resource ltd is an Australian baaed company which is engaged in the business of specializing in resources supply. The company specializes in minerals sand explorations, project developments. The company is known to be the largest producers of zircon and titanium dioxide and synthetic rutile (Iluka.com. 2018). The company has its headquarters in Australia and also extensively operates in Australia. The business of Iluka Resource ltd has also established its business in other countries for example USA where the business operates mining operations. The business is still in its growth phase and therefore requires further expansions of the business.
External Environment of a business refers to the business environment in which a particular business operates. The external environment also comprises of the various regulations which the management of a business needs to follow which includes sustainability requirements, tax governance of the business, social responsibility of the business and regulations relating to reporting requirements of the business (Zhang and Andrew 2014). In the case of Iluka Resources, the external environment of the business plays a vital role in overall operations of the business. The business has to adhere to environmental regulations and also to rehabilitation programs as the main activity of the business is mining and exploration.
The sustainability report which is prepared by the management shows that the business efficiently has device a plan which can effectively meet the social and environmental responsibility of the business. An analysis of the market and industry condition reveals that the greatest strength of Iluka Resources is that the business is the largest producer of Titanium Dioxide which has a variety of uses and has brilliant management and distribution system. The weaknesses of the business which can be identified from analysis is that the high level of costs which are incurred by the business. The analysis also reveals that the main competitors of the business are BHP Billiton, Rio Tinto in the mining industry.
The tax governance of the business is effectively followed as per the regulations which are established by Income tax Assessment Act 1997 and other similar acts which are applicable to the business. The management also follows the regulations regarding tax assessment of the business which are directed by Australian Tax Office (ATO). As per the annual report of the company for the year 2017, the business follows an effective tax rate of 3.6% and a corporate tax rate of 30% the main operating jurisdictions of Australia and Sierra Leone. As per the notes to account section of the annual report shows that the business has incurred a significant amount of revenue as taxes to the government. The management of the company is also engaged in overseas operations for which tax benefits are not yet allowed as specified in the annual reports of the business.
The annual reports of the company show that the management has adopted the Board of Taxation’s voluntary Tax Transparency Code (TTC). The transparency code of the business requires businesses to provide certain disclosures which are effectively provided in the annual report of the business. The transparency code requires reconciliation of income and current tax payable of the business which is to be done on the part of the management.
The agency theory of business refers to the relationship between the principles and agents in a business. In the case of a company, the shareholders are considered to the principles whereas the directors and other executives of the management are considered to be agents. In a general framework, the directors of the business are to adhere to the needs and expectation of shareholders. In an annual general meeting, the interests of the shareholders are represented by the directors of the company. However, in most situation there arises problems which is related that the directors of the company might consider their own interest above the interest of shareholders. This is known as agency problem which can be identified by the theory.
In the management of Iluka Resources, the agency problem can be avoided by following an appropriate policy relating to corporate governance. The management needs to develop an appropriate strategy in order to avoid the problems of agency and ensure that the interest of both shareholders and the management is fulfilled.
The technology advancements in a business play an important role in the overall development of the business. The management of Iluka Resources are focusing on sustainability development for which the management of the company needs to focus on t5echnological advancements of the business. The management of the Iluka Resources ltd focuses on developing technology so that the product which is offered can bring about technical support
Iluka Resources ltd maintains metallurgical testing facility in Capel and also has statelites laboratories which are established in major sites. Narngulu and Hamilton mineral separation plant laboratories is one of the sites where the management have ceramic testing facilities that are able to assess the comparative performance of zircon products when applied on ceramic tiles.
Sustainability reporting in a business about the policies of the business considering the impacts on environment, social and other factors of the business (Schwartz 2017). Corporate Social Responsibility of the business refers to the policies of the business for meeting the requirement of the society and also keeping the environment safe (Sustainabilityreport.iluka.com. 2018). The management of Iluka ltd provides special emphasis on its sustainability and corporate social responsibility practices of the business. The business needs to formulate special policies in order to meet the corporate social responsibilities and sustainability requirements as the business is engaged in mining industry (Hahn and Kühnen 2013).
The sustainability report of the company for the year 2017 shows high level of sustainability performance of the business and also the emphasis of the business in sustainability practices in day to day business operations (Junior, Best and Cotter 2014). In the business of Iluka Resource ltd, sustainability practices mean to integrate economic, social and environmental practices and ensure safety and security in every such practice of the business (Fonseca, McAllister and Fitzpatrick 2014). The management provides monthly sustainability reports in order to measure the sustainability practices of the business (Roy et al. 2015). The management of the company follows ICMM framework for sustainability developments and aims to reduce the incidents which can affect the environment and also ensure safety of the employees who are working with the company (Ioannou and Serafeim 2017). An extract of the framework which is taken from the sustainability report of the company is demonstrated below:
Figure 1: (Sustainability Framework of Iluka Resource ltd)
Source: (Sustainability report.iluka.com. 2018)
The above figure shows the basic guidelines which the management of Iluka Resource ltd follows in the operations of the business. One of the example which can be provided about the efficient sustainability practices of the business is development of Higima and Nyandehun villages which were connected by a bridge built by the business. The residents of these villages are of the opinion that such a development will be facilitating trade and commerce between the two villages and thereby bring about growth and development of both the villages. The framework for maintaining sustainability and corporate governance practices of the business requires the employees of the business to maintain a high level of ethical conduct (Ni and Van Wart 2015). The management also formulated an effective whistle blowing policy which allows the business to keep the identities of whistle blowers safe. The framework also consists of a zero tolerance policy regarding bribery and corruption practices of the business. The management also needs to provide anti-corruption and bribery policies in order to ensure that the key personnel of the business which can be facilitated with the help of online or manual training program as formulated by the management of the company.
The management of Iluka Resource Business also adheres to the tax regulations which are in force in Australia. Tax governance is an important part of the corporate governance policies of the business. The contribution which is made by Iluka Resource ltd towards the tax contribution during the year 2017 is shown to be $ 47.1 million. The tax is paid by the business towards the payments which are made towards income tax, royalties and other tax expenses which are incurred by the business during the year (Bice 2014). This shows that the business of Iluka Resource ltd has spent a significant amount on the tax expenses of the business during the year.
The company has an efficient policy regarding meeting the corporate social responsibility of the business and also has an effective system of following sustainability practices of the business. The business has also faced certain scandals and issues over the years of the business. The management of Iluka Resource ltd is engaged in acquisition of the business is in Sierra Rutile business. The business of Sierra Rutile was engaged in a scandal which is related to bribery issues which affected the business. The management of the business was alleged to be engaged in corruption activities which was related to bribe payments. The bribe payments were made to government officials in order to acquire license of the business. The corruption activity was later revealed after Iluka Resource ltd had acquired the mining business with the help of internal investigation conducted by the management of Iluka Resource ltd. Even though the management of Iluka Resource ltd reported about the bribery to the authorities, there is still significant risks which the business faced after the incident (Stubbs, Higgins and Milne 2013). The risks which was faced by the business are related to fines, litigations and penalties which can be imposed on the business of Iluka Resource ltd.
The bribing incident also affected the business of Iluka Resource ltd and also brought into light the anti-foreign bribery regime which the government of Australia is struggling to maintain. The present regulations which is in force in Australia risks the business of Iluka Resource ltd to face prosecution against the bribery incidents. As per the incident, the business of Sierra Rutile ltd has made payments of $ 110,000 bribe payments funneled with the help of West African Logistics company and deposited the same in a third person bank account. The incident was against the anti-bribery policy which is followed by the business. The management of Iluka Resource ltd is the organization which detected the incident and due to the zero tolerance policy of the business is able to report to the authorities regarding the bribery and corruption incident which took place pre-acquisition of Sierra Rutile ltd. However, the risks which are associated with the bribery incident will fall on the business of Iluka Resource ltd as the corruption incident was detected after the acquisition was accomplished (Tai and Chuang 2014).
The management of Iluka Resource ltd also has faced environmental consideration in the past. The company is engaged in mining business and therefore is engaged in lot of exploration activities which has the potential of seriously affecting the environment of the surrounding. The management has incorporated an effective rehabilitation policy which can improve the damages which the business has caused to environment through the exploration activities of the business (Dobele et al. 2014). As per the most recent incident, the business is affected by the bribery scandal which is undertaken by the business of Sierra Rutile and the same bribery was revealed by the management of Iluka Resource ltd while undertaking an internal investigation. As the business of Sierra Rutile is acquired by Iluka Resource Ltd, the business of Iluka Resource ltd also faces risks of fines and legal suits which can affect the reputation of the business (Northey, Haque and Mudd 2013). The management of Iluka Resource ltd also needs to focus on the environmental considerations for the activities which can affect the business.
Figure 2: (Increase in sales volume for different products of Iluka Resource ltd)
Source: (Iluka.com. 2018)
The above chart shows the major products which are offered by the business and also the respective increase in the sales volume of such products during the year. The products which are offered are zircon, rutile, synthetic rutile and limenite as shown in the chart above. The above chart shows that the sales volume of zircon, rutile and synthetic rutile has increased significantly during the year. This shows that the operational performance of the business has improved significantly in comparison to previous year analysis. The overall revenues which the business is able to earn from operations from Australia and other countries where the business carries out its operations has increased tremendously in comparison from previous year’s estimates. The annual reports of the business also show that the company has also incurred higher costs which are associated with operations of the business. This is quite natural as the company is in its expansion stage and therefore has increased the level of operations of the business due to which the overall costs which is associated with the operations of the business has increased significantly.
Figure 3: (Stock Price Changes)
Source: (Bloomberg.com. 2018)
The above chart shows the fluctuation in share prices of the business during the year. The graph also shows that the share price is further anticipated to rise. This show that the company has an overall good reputation in the market and therefore the valuation of the business is appropriate.
Therefore, the above analysis shows that the performance of the business has increased tremendously over the years and it also suggest that the management is considering the financial performance of the business in order to achieve the goals and objectivities of the business. The business effectively follows all relevant standards of accounting which is associated with the business of Iluka Resource ltd.
Conclusions
As per the above discussions regarding the business policies and structure and corporate Governance framework of Iluka Resource ltd, the sustainability framework of the business is appropriate. The annual reports of the business show that the management of the company effectively follows conceptual framework for the purpose of reporting accounting information of the business. A critical analysis of the sustainability report of the business reveals that the management has set up an efficient sustainability reporting structure which meets the business process requirements, environmental requirements, economical requirements and also social requirements. The management has also established an efficient corporate governance structure as per the sustainability report of the company for the year 2017.
The above discussion reveals that the business has faced a scandal which relates to corruption and bribery charges against a subsidiary of the company which the company had recently acquired. The bribery charges affect the reputation of the main company and the business potentially faces the risks which are associated legal suits, fines and penalties. In order to avoid such an unethical behavior in the business the following recommendation are suggested below:
The business of Iluka Resource ltd needs to further improve the corporate social policies of the business and also promote ethical practices in the business. The management of Iluka Resource ltd has effectively managed the activities of the business and the only scandal took place in the subsidiary company due to licensing requirements which can be prevented by following the suggested recommendations which is provided above.
Reference
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