GUSSIE PERRY LTD
Introduction
Gussie Perry Ltd (GPL) is a long-established divisionalised company with its origins in shipping. The company has been in existence for nearly 120 years and has developed a reputation for reliability and quality service.
The shipping activities in which Gussie Perry Ltd (GPL) is engaged in comprise four divisions – cruise, ferry, container and bulk shipping. The cruise division is engaged entirely in the carriage of passengers and the ferry division carries passengers and vehicles. The vehicles carried by the ferries range from motor cars to articulated trucks and buses. The container and bulk shipping divisions are engaged in the carriage of freight only.
Organisational goals
The company has stated over recent years that it aims to:
1. Increase its international business to achieve long-term profitability.
2. Provide the necessary capital investment to support its international operations.
3. Train and develop the company’s employees.
Environmental and Safety policy
Environmental protection is now a key aspect of corporate social responsibility. Pressure on Gussie Perry Ltd (GPL) for better environmental performance is coming from many quarters. The company recently implemented an environmental and safety policy, which is monitored through an audit system, in an effort to ensure that its policies are being executed. It is the aim of the company to have operational standards which match with the best industry’s standard. Training of management, staff and specialist auditors is seen as a priority within the organisation’s environmental and safety policy. This has become a major concern for the company, because of customer anxiety about the safety of the ferries.
Financial results
In the last financial year, earnings per share was GH¢2.12 producing a dividend cover of 1.15 times. The dividend per share paid by Gussie Perry Ltd (GPL) has remained at the same level for five years. Comparative values for divisional revenue and operating profit are shown in table 1.
During the year, general inflationary levels in the shipping industry was 14% per annum. The company’s cost of capital is 25%.
Extract from the Chairman’s statement for the financial year
In his statement, Mr. Aaron Yeboah, the Chairman of Gussie Perry Ltd (GPL), commenting on revenue and profit before the inflation adjustment, said the company achieved encouraging results, particularly in the cruise division. The company had taken delivery of a new cruise liner, at a cost of GH¢1,200,000 and has two more on order. Aaron believed that this was an expanding market and considered the company to be in a good position to take advantage of the opportunity. With regard to the ferry division, Aaron expected continued growth, although there was an expectation of potential new entrants due to increased cargo volumes. This contrasted with his view of the declining performance of the container and bulk shipping divisions as shown in table 1.
Market information
Gussie Perry Ltd (GPL) commissioned a marketing research into its cruise and ferry operations. The results of this research indicated that, in recent years, within the cruise liner industry, there has been a change in customer appeal. Traditionally, the main customer base had comprised of traders. In the last five years, the cruise division has experienced an increase in its clientele especially holiday makers. This stemmed from the promotion of domestic tourism.
Furthermore, the research showed a 15% increase in marine transport but Gussie Perry Ltd’s market share actually reduced by 4%. The report indicates that the probability of the cruise market continuing to grow was bright. However, there were uncertainties about the future potential of the container and bulk shipping divisions.
Required:
a) Identify FOUR ways in which GPL’s concern for environmental and safety policy can impact on its performance. (4 marks)
View Solution
- Understanding and managing environmental costs. Environmental costs are often hidden in overheads and environmental and energy costs are often not allocated to the relevant budgets.
- Minimise accidents and long-term environmental effects. Accidents and long-term environmental effects can result in large financial liabilities.
- Companies with poor environmental performance may face increased cost of capital because investors and lenders demand a higher risk premium.
- Environmental protection and ethical labour practices is now a key aspect of corporate social responsibility. Any steps they can take to protect the environment and its employee’s safety are considered both good for the company’s reputation and society as a whole.
- Pressures on businesses for environmental and safety of employees are increasing.
- Short term savings through waste minimization and energy efficiency schemes can be substantial.
(Any 4 points)