Nestle Malaysia

Executive summary In today’s business world, it is an important objective for Organizations to make customers satisfied because they are the ones who keep the business running. In the past, organizations did not take interest in managing customer needs but the scenario has been change financial prospects are changed.. Nestle is one of the leading corporation in the world. It has been working for a long time in the Malaysia and one of the leading brands. Nestle Malaysia is providing halal food to more than 40 Muslim countries. It is necessary for investment analyst to seek the financial performance of the company to understand its growth in the market. This report has detailed financial analysis of nestle Berhad for the consecutive five years. To view it financial condition among its competitor. Detailed scenario analysis is done to better assess the future prospects. Competitors analysis is done to show the company standing and comparison of ratios are also done. Dividend policy of nestle in Malaysia is discussed in detail.There are various type of information regarding dividend policy and shareholders’ wealth provided in this report. Furthermore, this report also touches on objectives of earnings availed to share holders. The beta analysis is also done. Summarizations of results are done in the conclusion. All the calculations are performed by the figures in the Nestle annual reports.

1

Table of Contents

Introduction……………………………………………………………………………………3 Mission and vision……………………………………………………………………………..3 Financial

ratio

analysis………………………………………………………….

…………………………………….…………..9 Dividend policy……………………………………………………………………………………………… ….……………………17 Competitor analysis…………………………………………………………………………………………… …………………….19 Scenario Analysis……………………………………………………………………………………….. …………………………..21

2

Beta calculation………………………………………………………………………………………… …………………………….23 Conclusion………………………………………………………………………………………… …………………………………….24 References……………………………………………………………………………………… ….……………………………………25

Nestle Malaysia

Introduction Nestle is one of the world’s leading dairy business. Nestle is famous for its food and nutrition plan in all around the world. Nestle is known for its quality oriented and diversified products. Nestle is one of the successful largest food group with different diversification operated in more than 115 countries in all around the world. According to the recent company reports 2800 employees are working worldwide. Nestlé’s headquarter is in Vevey, Switzerland. The famous brands of nestle are Nescafe, Nespresso, Kit Kat, Haagen-Dazs and Movenpick. Mission vision and objectives of nestle Nestlé’s mission, in the words of our founder Henri Nestlé, is to: “positively influence the social environment in which we operate as responsible corporate citizens, with due regard for those environmental standards and societal aspirations which improves quality of life.” Henri Nestlé, 1857 3

Vision of Nestle From 1857 to present date the company is much more focused and determined on it mission. The vision of company reflects the management commitment for the customers to provide them with the best quality food item. Nestle believes that they are responsible for the health of the people. Well developed research and development infrastructure is owned by the organization to achieve the good nutrition results. Nestle believes in being social responsible, Corporate social responsibility means organizations engaged in activities that are socially adequate which shows their concern for the whole society. Nestle quality products means the trust of consumers to maintain the level of trust the management is highly interactive to monitor all operational activities. Nestle ensure the nutritional requirements and maintain the standards for quality to satisfy the customers. Innovation is the long term vision of nestle food.

Nestle in Malaysia The main aim of nestle Malaysia is to meet the nutritional needs. To fulfill the nutritional requirements of the people by providing them quality food. The strategy of nestle Malaysia is to go international but act local. In Malaysia nestle starts its first factory in 1962, in Petaling Jaya, near Kuala Lumpur. Nestle the Anglo Swiss manufacturer start their trading in Malaysia in 1912 the Anglo-Swiss Condensed Milk Company. Malaysia is one of the wide market for nestle, their business is expanding on continuous basis. Objectives This report basically measures the financial aspects of nestle Malaysia. The financial indicators are calculated to show the financial position of nestles Malaysia. The basic objective of this report is measure the financial ratio and compares these results with potential competitors. The halal food is exported to the 50 Muslim countries from Malaysia production units. To expand the production capabilities and meet the halal food requirements, Nestle Malaysia opens its eighth factory Sri Muda in Selangor. In Asia nestle Malaysia is among the top five nestle markets and amongst the twentieth in the world markets. (Hofbauer, 2015) Scope The scope of this report is to clarify the current scenario of Nestle Malaysia. It will generate the result that are empirically provides evidences. It helps the investment analysts to gain brief and clear information regarding the nestle Malaysia also its growing investment opportunities. This 4

report is helpful for the students also to know how actually the financial aspects are important to make investment. Different financial ratios can help readers to provide the true investment scenario. Limitations Every report has some limitation in this report there also exist some limitations. In calculating the financial ratios or when the results are based on calculations. There should be some calculation errors exist or may be vary from ones calculation to others. The other limitation of this report is that it is not possible to mention all competitors of nestle Malaysia. It is not possible to present the detailed competitor analysis. Company’s description The Company was publicly listed on the KLSE now known as Bursa Malaysia Berhad on 13 December, 1989. The nestle Malaysia Berhad operating as an investment holding company. Nestle Malaysia institutional share holders details are given below: 1. Employee provident fund shares are 21.38m, it hold 9.31 %( 3 March, 2016). 2. Permodalan Nasional Berhad shares are 10.50m, it hold 4.48%( 27 Feb,2015) 3. Kumpulan Wang Persaraan shares are 4.75m, it hold 2.03%( 27 Feb,2015) 4. Great Eastern Life Assurance Co. Ltd shares are 3.92m, it hold 1.67%( 27 Feb,2015) 5. Public Mutual Bhd shares are 2.53m, it hold 1.08 %( 27 Feb, 2015). 6. Social Security Organization shares are 1.36m, it hold 0.588%( 27 Feb,2015) 7. East spring Investments Bhd shares are 540.80k, it hold 0.23 %( 27 Feb, 2015). 8. Vontobel Asset Management, Inc. shares are 5.23.00k, it hold 0.22%( 30Oct,2015) 9. Dimensional Fund Advisors LP shares are 174.00k, it hold 0.07%( 31Dec,2015) 10. Hong Leong Asset Management Bhd shares are 109.60k, it hold 0.05%( 30 june,2015) 19.72% percent of shares are held by top shareholders, Data from 31 May 2015 - 04 Mar 2016. Source: FactSet Research Systems Inc. © Thomson Reuters (Thomson, 2016)

Nestle Malaysia board of Directors Board of directors The nestle Malaysia’s board of directors and executive members are listed below 5

1. Tan Sri Dato’ Seri Syed Anwar Jamalullail 

Independent, Non-Executive Director



Chairman of the Board of Directors



Chairman of the Audit Committee



Chairman of the Nomination Committee



Malaysian, 63 years of age

2. Dato’ Mohd. Rafik Bin Shah Mohamad 

Independent, Non-Executive Director



Member of the Audit Committee



Member of the Compensation Committee

3. Tan Sri Datuk (Dr.) Rafiah Binti Salim 

Independent, Non-Executive Director



Member of the Audit Committee



Member of the Compensation Committee

4. Dato’ Frits Van Dijk 

Independent, Non-Executive Director



Member of the Nomination Committee



Member of Compensation Committee

5. Tan Sri Datuk Yong Poh Kon 

Independent, Non-Executive Director



Member of the Nomination Committee

6

6. Toh Puan Dato’ Seri Hajjah Dr. Aishah Ong 

Independent, Non-Executive Director

Executive Committee 1. Alois Hofbauer 

Managing Director



Member of the Compensation Committee (Appointed with effect from 24 February 2014)

2. Martin Krügel 

Executive Director Responsible for Finance & Control) (Appointed with effect from 1 October 2014)

3. Gavin Schwarzenbach 

Executive Director, Supply Chain

4. Adnan Pawanteh 

Executive Director, Technical & Production, MYSG

5. Kumaran Nowuram 

Executive Director, Nestlé Liquid Drinks

6. Zainun Nur Abd. Rauf 

Executive Director, Group Corporate Affairs

7. Nirmalah Thurai 

Country Business Manager, Cereal Partners Malaysia

7

8. Shahzad Umar 

Executive Director, Group Human Resources

9. Chew Soi Ping 

Executive Director, Sales, MYSG

The executive committee shows some changes like managing director is appointed in 2014. Alois hofbauer is working in Australia but know he is working for Malaysia. His working skill and capabilities are viewed in his past record he is of vision to expand the quality nutritional products in Asia Pacific. The shareholders are expanding because new investments are being done by the board members. The Malaysian government policies are very supportive for halal business. The aim of directors and executives of nestle Malaysia to develop strong relationship with customers. To acknowledge the support of shareholders provide with them best profitable opportunities. The executive members of Malaysia are very responsive, they strongly follows the ethics and code of conduct. Different changes have been done in the financial policies to meet the resource challenges and properly follow the tax policies of government. The executive members strongly believed on “be ethical and be responsive”. (Message by the managing director) Some important Fact about nestle Malaysia are shown in the table Facts about Nestle Malaysia 1 Nestle headquarter in Malaysia

Petaling Jaya. Listed on Bursa Malaysia, formerly Kuala Lumpur

2 2012-2013 sales

Stock Exchange. 4.6 billion Malaysian Ringgit (CHF 1.3 billion) 7.3%

3 Geographic existence

growth compared to previous year 7factories (2014) 1 distribution centre.

4 No of employees 5 No of halal

1 R&D centre in Singapore. 5000 products More than 500, exported to more than 50 countries

manufacturing in Malaysia

worldwide. Halal centre of excellence for the Nestlé Group 8

6 New investments 7 Manufacturing products

150 million Malaysian Ringgit (about CHF 47 million) in Milo, Nescafe, Nestlé Omega, Nestlé Low Fat Milk,

Malaysia Source: www.nestleMalaysia.com

Nestlé Full Cream

Financial analysis Financial analysis is basically the selection, valuation and interpretation of organizations financial data along with other important financial information. It helps the organization’s management to view the investment opportunities as well as financial decision making. It helps the organizations internally also; financial analysis is useful in evaluating the employee’s performance, operational efficiencies, and the policies regarding credits. Externally financial analysis helps to estimate the prospective investment opportunities and to better understand the borrower’s credit value (Malaysia Investment Development Authority. 2012). Organizations done financial analysis on quarterly basis to better view the financial resources and capabilities for long term decision making. Several ratios are used to present the organizational financial performance. The financial analyst needs to summarize the financial figures from firm’s financial data from multiple sources. The prime source of data is firms annual report, the firm’s annual reports includes the balance sheet, the income statement and the cash flow statement. Besides all these information some important information’s are also required that is provided in the financial statements of firm. It includes the information regarding firm’s stock, share price and the prices of market securities. The other source of information is economic data it includes the gross domestic product, consumer price indicators. It will result in assessing the present conditions and future projection of company. Financial analysts used all this financial information in interpreting, summarize and present the findings in an understandable manner (Mansfield, E. R 1982). It enables the investment managers to judge the present and the future financial circumstances and the operating performance of the company. In this report we introduce the financial ratios of nestle Malaysia, using the pertinent information regarding nestle from its published annual and financial reports. Make comparison with its previous years to present its current and previous financial standing in the market. These results are also compared with its competitors.

9

Balance Sheet Items (in %)

2005- 2006- 2007- 2008- 2009- 2010- 2011- 2012- 2013- 2014- Latest 12

12

12

12

12

12

12

12

12

12

Qtr

2.49

3.83

1.98

1.55

1.50

2.74

2.62

1.82

0.73

0.67

0.59

—

—

—

—

—

—

—

—

—

—

—

Cash & ShortTerm Investments Accounts Receivable Inventory Other Current Assets

19.29 22.67 27.86 27.67 20.69 21.39 25.85 21.58 19.56 16.08 15.41 32.85 30.85 28.76 23.89 22.04 19.94 22.23 20.73 24.23 22.04 28.38

Total Current Assets Net PP&E Intangibles Other LongTerm Assets Total Assets Accounts Payable

54.64 57.35 58.59 53.11 44.24 44.07 50.69 44.13 44.52 38.79 44.37 35.00 33.71 32.44 38.15 50.23 50.46 44.44 49.64 50.10 56.17 52.03 5.35

4.55

3.82

3.68

3.56

3.43

3.05

3.20

2.92

2.65

2.44

5.02

4.39

5.14

5.06

1.97

2.04

1.82

3.02

2.45

2.40

1.16

100.00 100.00 100.00100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 —

—

—

—

—

—

—

—

4.58 18.88

6.38

3.30

4.91

0.21

—

0.14

1.18

1.59

1.05

1.21

1.17

0.58

1.61

—

—

2.24

2.13

—

—

—

—

—

—

—

—

—

—

—

Short-Term Debt 19.20 Taxes Payable Accrued

—

—

—

3.53 13.87

10

Balance Sheet Items (in %) Liabilities Other ShortTerm Liabilities

2005- 2006- 2007- 2008- 2009- 2010- 2011- 2012- 2013- 2014- Latest 12

12

12

12

12

12

12

12

12

12

Qtr

26.32 40.63 34.32 54.47 36.33 35.04 43.87 48.78 51.18 50.93 43.46

Total Current Liabilities Long-Term Debt Other LongTerm Liabilities Total Liabilities

46.70 46.79 54.25 62.06 40.80 40.53 45.68 48.78 51.32 56.71 59.45 7.68

7.35

0.32

0.16 19.15 18.34 16.87

4.42

4.03

3.66

3.27

7.10

7.53

5.67

6.72

7.36

5.56

5.90

5.91

6.93

6.64

5.44

61.48 61.67 60.25 68.94 66.88 65.52 67.99 60.57 60.91 66.26 68.63

Total Stockholders' Equity

38.52 38.33 39.75 31.06 33.12 34.48 32.01 39.43 39.09 33.74 31.37

Total Liabilities & Equity

100.00 100.00 100.00100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00

Financial ratio analysis includes the following ratios: 1. 2. 3. 4. 5.

Liquidity ratio Activity ratio Financial leverage Profitability ratio Market ratio

1. Liquidity ratio Liquidity ratios determine the company’s ability to meet its short term obligations by using the assets that more quickly converted into the cash. The assets that are quickly converted into the cash are termed as liquid assets. They are shown as current assets in the financial statements. Current assets are used for the daily base operations of companies known as the working capital of the organization (Wyss, R. V. 2012). Net working capital is calculated as current assets exceed the current liabilities.

11

Liquidity ratio calculations include: Current ratio It indicates the ratio of current assets to current liabilities: it indicate the company’s ability to meet its current liabilities with current assets. 2:1 is the best indicator it mean double the current assets are taken as good financial indicator to meet its short term liabilities. We have calculated the nestle Malaysia current ratio of five years, data has been taken from nestle annual report. Formula: Current assets\Current liabilities Years 2010 2011 2012 2013 2014

Ratio 1.09 1.11 0.90 0.87 0.68 Nestle Malaysia

Operating cycle The role of operating cycle is to estimate the time that has been taken to produce cash from the investment in goods and services. The net operating cycle means the total time taken to produce cash. Formula Operating cycle = no of days of inventory + no of days of receivables Net operating cycle= operating cycle – no of days of receivables

Years 2010 2011 2012 2013 2014

Net operating cycle 509 582 829 664 857

Quick ratio It is basically calculations of the quick liquid assets to satisfy the current liabilities. It is also known as asset test ratio Formula 12

Quick ratio = current assets – inventory/current liabilities Years 2010 2011 2012 2013 2014

Quick ratio 0.56 0.54 0.46 0.48 0.40

Net working Capital It indicates the ratio of current assets minus current liabilities to sales. It means that it shows the firm liquidity in terms of sales. Formula Net working capital to sales ratio = Current Assets- current liabilities/sales Years 2010 2011 2012 2013 2014

Net working capital MYR 63 100 -89 -142 -413

Results summarizes The liquidity ratios of Nestle show the average results. The current ratio and quick ratio shows the lower rates then their past years trends (Williams, A. S., & Shoesmith, F. 2010). These ratios should be increasing because the short term obligations are based on the liquidity of the current assets. Net working capital shows very bad trends from its past years it shows negative calculations. The days of operating cycle is also increasing from the past years. The operating cycle lower days are considered as good because it needs less current ratio margin. Lower operating cycle increases the firms low risk financial condition. 2. Profitability Ratios Profitability ratios indicates the profit of the organization against it sales and expenses. It express the profit margins to show the how much is left after the cost of goods sales. It is very important for the firm to know how much firm is capable of making new investment. Following ratios are calculated to indicate the firm’s profitability ratios. Gross profit margin 13

It indicates how much is left behind after cost of goods sales. Formula Gross profit margin = Gross income / Sales Years 2010 2011 2012 2013 2014

Gross profit margin % 33.4 32.8 34.1 35.5 35.3

Operating profit margin Is the ratio of operating profits, indicates the how much is left after the operating expense Formula Operating profit margin = operating income / sales Net profit margin It is the ratio of total income to sales that how much is left after all expense Formula Net profit margin = Net income / Sales Years 2010 2011 2012 2013 2014

Net profit margin MYR 12.11 12.33 14.42 15.34 15.08

Result summarizes Profitability ratios indicate the return money after the sale and meeting all expenses. These ratios are very important for the investors and the shareholders to see the returns of company (Wet, J., & Mpinda, M. 2013). The higher trends are considered as good indicators. From the past years net profit margin and gross margin is increasing but from the years 2013 – 2014 are equal there is no increase in the profitability of the Nestle. Overall it shows the good scenario of increasing trends. Economic downturn has effect on the stock market may be the investments are the reasons in average profitability ratios. 14

3. Activity ratios Activity ratios measured that how well the assets are used. It indicates that how well firm is utilizing its investment to work. The most common activity ratios are Inventory turnover It indicates the cost of goods sold to inventory Formula Inventory turnover = cost of goods sold/ inventory Years 2010 2011 2012 2013 2014

Inventory turnover 7.30 7.03 6.47 7.54 7.98

Asset turnover It indicates the ratio of sales to the total assets Formula Total asset turnover = Sales / Total assets Years 2010 2011 2012 2013 2014

Asset turnover 2.31 2.49 2.33 2.40 2.19

Result summarizes The activity ratios of nestle are not much improving from the last five years. Only the few points of increase is shown which average in no is. The activity ratios indicates the how well the investment in assets are generating the revenues (Trueman, B., Wong, M. H. F., & Zhang, X. J. 2003). The total asset turnover is not on much increasing trends it shows that the calculations of 2014 are less 2013. This indication is not satisfactory organization must see its asset turnover reasons. Redirect its activity analysis to get good turnover.

15

4. Financial Leverage ratios Financial leverage ratios are used to check the financial risk that company has to own. How the particular level of mix of debt and equity is utilized. Following ratios are calculated the leverage ratios Equity ratio = total debt / total shareholders’ equity Years 2010 2011 2012 2013 2014

Debt/equity 0.53 0.53 0.13 0.11 0.12

Result summarizes The financial leverage from the past five years shows the decreasing trend which shows the less risk in debts. The latest year show the increase of one point. 5. Market ratios It deals with the financial condition and performance of the organization; it provides useful information for managers and creditors. It includes the following ratios Earnings per share = net income to shareholders/ no of shares out standing Years 2010 2011 2012 2013 2014 Result Summarization

Debt/equity 1.67 1.95 2.16 2.40 2.35

The earnings per share are very important for the mangers to estimate the financial conditions and for the creditors also. The continuous increasing trends are summarized from the past five years. There is significant increase is assumed from 2013 – 2014. This enhances the investor’s interest for Malaysia. The people are waiting for the long term investment, earnings per share is very important source of information for them.

Dividend policy of nestle 16

“The best possible dividend policy is defined as the policy that maximizes the stock prices of the company which consequently maximizes the shareholders’ wealth. Thus, it may lead to the improvement of the economic growth. In shareholders point of view, they prefer current dividend to future income. In other words, dividend is the important determinant in order to examine the shareholders’ wealth” (Hussainey et al., 2011). Nestle Malaysia is dealing in the highly competitive food markets; their dividend policy that based on stock rate is growing on quarterly basis. Their dividend policy is always according to their competitors moves regarding dividend. Executive stock option are readily opened in nestle Malaysia. There are different in policies are assumed because there are executive level changes are don in 2013. There are no exact rules and regulations for dividend payouts in Malaysia companies are free in deciding the payout ratio. In food sector like nestle, unilever and Dutch lady milk. Basically there are two kinds of dividend policies that are followed by nestle Malaysia. Managed dividend policy is positively followed in some quarters when it is believed that investors should return maximum profits and increased in share price is related. Yet, residual dividend policy is implemented by firm which payout left cash as dividend after attractive speculation ( Malkawi 2012). But as Dutch lady milk changes its dividend payout ratios. Ultimately nestle follows the managed dividend policy

date

Revenue Financial No Financial (RM,000 Year . Quarter )

Profit Net Earning Dividen NTA Before Profit Per Share d (RM Tax (RM,000 (Cent) (Cent) ) (RM,000) )

25/02/201 31/12/201 6 5

4

31/12/201 5

1,198,94 2

118,677

99,789

42.55

130.00

3.02 0

22/10/201 31/12/201 5 5

3

30/09/201 5

1,218,38 5

205,225

179,161

76.40

65.00

3.45 0

12/08/201 31/12/201 5 5

2

30/06/201 5

1,142,90 1

159,556

123,903

52.84

65.00

2.95 0

20/04/201 31/12/201 5 5

1

31/03/201 5

1,277,72 9

244,252

187,878

80.12

0.00 4.110

17

23/02/201 31/12/201 5 4

4

31/12/201 4

1,108,76 2

117,496

98,304

41.92

175.00

3.31 0

27/10/201 31/12/201 4 4

3

30/09/201 4

1,157,29 5

189,820

150,075

64.00

0.00

3.07 0

30/06/201

1,270,16

155,057

118,478

50.52

60.00

238,813

183,527

78.26

0.00

124,444

100,455

42.84

175.00

177,315

136,591

58.25

0.00

174,180

140,238

59.80

60.00

243,115

184,417

78.64

0.00

112,864

99,479

42.42

155.00

173,970

127,299

54.29

0.00

144,008

120,495

51.38

55.00

206,827

158,080

67.41

0.00

101,847

87,066

37.13

125.00

138,080

110,000

46.91

0.00

127,775

106,549

45.44

55.00

191,107

152,686

65.11

0.00

45,004

39,259

16.74

12/08/201 31/12/201 4

4

17/04/201 31/12/201 4

4

24/02/201 31/12/201 4

3

12/11/201 31/12/201 3

3

22/08/201 31/12/201 3

3

30/04/201 31/12/201 3

3

21/02/201 31/12/201 3

2

01/11/201 31/12/201 2

2

30/08/201 31/12/201 2

2

25/04/201 31/12/201 2

2

23/02/201 31/12/201 2

1

04/11/201 31/12/201 1

1

18/08/201 31/12/201 1

1

20/04/201 31/12/201 1

1

24/02/201 31/12/201

2 1 4 3 2 1 4 3 2 1 4 3 2 1

4 31/03/201 4 31/12/201 3 30/09/201 3 30/06/201 3 31/03/201 3 31/12/201 2 30/09/201 2 30/06/201 2 31/03/201 2 31/12/201 1 30/09/201 1 30/06/201 1 31/03/201 1

4 31/12/201

4 1,272,71 2 1,138,311 1,208,04 1 1,214,22 2 1,227,35 1 1,099,79 9 1,142,99 4 1,149,52 2 1,164,12 8 1,188,96 1 1,171,46 8 1,155,56 7 1,184,99 8 963,893

3.01 0 4.26 0 3.48 0 3.59 0 3.01 0 3.99 0 3.20 0 3.36 0 2.81 0 3.57 0 2.73 0 2.93 0 2.58 0 3.28 0

115.00 2.62

18

1

0

0

28/10/201 31/12/201 0

0

26/08/201 31/12/201 0

0

21/04/201 31/12/201 0

0

3 2 1

0

30/09/201 0 30/06/201

991,076 1,050,86

0

3

31/03/201

1,020,48

0

7

132,652

113,187

48.27

0.00

117,470

100,153

42.71

50.00

170,617

138,798

59.19

0.00

2.94 0 2.47 0 3.03 0

Results summarizes The dividend payouts are very attractive for the share holders. As the trends shows in the above table the dividend payout ratio is continuously increasing and people are more concentrated to invest in the nestle Malaysia Berhad (Wahab et al., 2008).. In the start of 2016 the payouts are positive of starting 130 and earnings per share are good. In competition with Dutch lady milk nestle follows the managed dividend policy and believes in increasing the wealth of investors (Salim & Yadav, 2012 ). As a financial analyst it is suggested that the people who are interested in investing shares nestle Malaysia shows the positive impacts in making long term investments. Nestle Malaysia has shifted it concerns towards the maximization of shareholders wealth as this is reported in the annual reports. Competitor’s analysis The major competitors of nestle Malaysia are Dutch lady milk and Kellogg’s. This competitor’s analysis is helpful for the investors to compare the financial position and standing of the companies. This is helpful in making investment decision. It will show the financial ratios analysis. Malaysia is very emerging market in halal food and government policies are very supportive for the companies to expand their business in ethical manner. Year 2014

Curren t ratio

Quic k ratio

Net workin g capital

Gross profit margi n%

Net profit margi n

Inventor y turnover

Asset turnove r

Nestle Malaysia Dutch lady milk Kellogg’ s

0.68

0.40

-413

35.3

15.08

7.98

2.19

Financia l Leverag e Equity 0.12

1.44

0.92

79

32.8

14.8

6.53

2.63

2.2

0.56

0.28

-253

34.3

8.1

6.99

0.89

7.7

EPS

2.3 5 1.7 2 1.7 2

19

Result summarizes In comparison analysis the major strengths of nestle Malaysia should be improved. In halal food Dutch lady milk and Kellogg’s are the biggest competitors of Nestle. Summarizes the results of financial analysis comparing with Dutch lady milk and Kellogg’s overall the performance of nestle is good. The current ratio is lower than both competitors. Quick ratio with 0.40 also shows lower rate because these ratios are the indicator of liquidity in terms of short term obligation. Gross profit margin and net profit margin has also shown the good calculation then the other two competitors. Financial leverage shows the average calculations then the other two competitors it indicates the Nestle is capable of taking any risk. Earnings per share indicate the good returns. The debt and equity ratio is very well balanced by the nestle, that is why nestle investment opportunities are higher than the other two competitors because it is very low in nos. But the liquidity ratios should need financial mangers consideration to improve its calculations. SWOT analysis of Nestle Berhad On the basis of above comparison SWOT analysis is done to clarify the major strengths, weakness, opportunities and threats. Strengths The major financial strengths of Nestle are the dividend payouts and having good production capabilities. In some of its products Nestle is becoming the market leader. Nestle Malaysia overall financial performance is capable of new investments. The financial team is very coordinating. New investment opportunities are offered to shareholders. New factor or production plant is added to increase the capacity for the manufacturing to meeting the issues of delay.

Weakness The major weaknesses of nestle is that there liquidity is not managed from two years. There financial resources are mix of good and average. The financial analysts are not that much capable. Threats 20

The major threats are the growing competition local or international. Economic downturn is also a big threat. New capacity building should be risky. Inflation is the biggest threat to satisfy shareholders, it is difficult to have continuous increase in payouts Opportunities Go for cheaper and quality oriented raw material. New capacity buildings are important investment. Take new investment risk its ratios show positive trends as well. New technology advancement is very important Increasing their just in time speculation As the digitization increases, there are several issues rising in food requirement available . Scenario Analysis Scenario analysis means that it is the process estimations of the expected values of portfolio in a given time to assume the specific changes in the portfolio trends. Scenario analysis is useful in making the future projection focused on the expected rates of returns; financial analysis can help to design the scenario of the firm’s cash flows and several payouts. The expected cash flows or liquidity of assets is valued as risky. Future projections are very important to make for the risky assets and cash flows of the company. The more precise measures are taken to understand the scenario portfolio. The results may vary from the projections. Because of the time duration different factor like inflations, changing in the policies and cash flow trend in other areas may be not expected. This is intent to do for the risk assessment as much possible to be responsive for the future trends to be stable in the highly competitive environment. Best and worst scenario analysis The best scenario is that with the risky assets, the actual cash flows of the firms may be varying from the expectations. In best scenario the assets values are set to be the preeminent and expected to be the possible best outcomes. In terms of good cash flows generated from the assets this projection leads to the best scenario analysis portfolio. For evaluating the firm best possible

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revenue growth rate and the operating margins at the highest level to seek profitable future. This is not always possible to achieve possible returns as project in the scenario Worst scenario The worst scenario is that with the risky assets, the actual cash flows of the firms may be varying from the expectations. In worst scenario the assets values are set to be the worst and expected to be the possible worst outcomes. In terms of good cash flows generated from the assets this projection leads to the worst scenario analysis portfolio. For evaluating the firm worst possible revenue growth rate and the operating margins at the lowest level to seek bad future. This is not always possible to achieve possible returns as project in the scenario. Best possible scenario In the best possible scenario techniques the expected cash flows are not drawn. This technique tries to build the optimum level of realistic indicators to generate the real indication. For the future projection of revenue growth and margin maximization have to see the possible indicators for these prospects. The growth and the margin combination are used to analyze this future prospect. Nestle scenario analysis Funding is the main element of the healthcare policy formation of Nestle . The three major constructs of policy formation context, process and actors considers the funding a major aspect to initiate the healthcare policy. Fundamental rules for health care explain that how well the funding is planned, it results in good implementation of healthcare planning. Funds are generated by the two modes. Through direct mode, funds are generated through executive stocks. In Nestle the funding policy is very clearly stated tax that is directly levy on firms like insurance, on employee’s payroll. The other mechanism for collecting funds is through charitable trust. The funding policies vary from region to region. Best and the worst scenario The scenario analysis of the nestle is focused on the earnings per share or the payouts that are indicated in the financial analysis by the past 4 and current 1 scenario. Malaysian halal food is very competitive and it holds the large no of investors. So the nestle Berhad indicates the best possible payouts to maintains its shareholders trust. The returns are expected on the highest level and the margin ratios are considered to be the strong in the future. New investments are to be to expand the business on the continuous basis. The current ratio and quick ratio are not so supported for the nestle good scenario. The continuous fluctuation in the current acids can be seen as the worst scenario for the nestle Malaysia. The pricing policy is also a good and bad scenario for nestle because as the price of dairy farming is increasing. It is very difficult to

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manage the standard pricing policy. The quality raw materials substitutes’ should be planned to overcome this future prospect. Result summarization The results of scenario analysis shows the positive prospects but to determine the future projection it is important to improve the financial condition of the organization as well. Organization should carefully manage the current assets to current liabilities because it impacts on the long term liabilities and debts. Overall the future suspects are growing. Beta calculation for the nestle Berhad Levered/Unlevered Beta of Nestle Malaysia Bhd The Beta is a relevant measure of volatility. Nestle Malaysia Bhd. shows a Beta of around 0.06. This is significantly lower than 1. The volatility of Nestle Malaysia Bhd. according to this measure is significantly lower than the market volatility. The beta calculation is basically the summarization of the whole results and it shows not significant profitable market indicators for the organization

International Peers Market Company Name

Ctry

Cap. last (m$)

Nestle Malaysia Bhd.

MYS

4 211

International Peers Median

Year-To-Date

Beta 1-Year

Price Change (in local currency)

0.06

0.8%

0.77

-4.0%

Nestle S.A.

CHE

223 962

0.81

-4.0%

Nestle India Ltd.

IND

7 436

0.72

-10.6%

Parmalat S.p.A.

ITA

4 996

0.14

0.9%

Danone SA

FRA

43 643

0.77

2.6%

The beta calculations should be improved as it is not in the negative trend as its international competitor’s shows some negative means. The financial prospect are very difficult to handle because every government has its own rules and regulations. Economic downturn is also 23

suspected in 2013- 2015 that impacts the financial conditions of the organizations. Inflation and increase cost of the raw material to manage the price is very difficult to handle

Conclusion This report shows the results of the five year financial ratios of the Nestle Berhad different ratio show different indicators. Competitor analysis is also given to show how the company stands in the competitor environment. Detailed dividend policy is explained to the dividend policy of the nestle Berhad. Scenario analysis is also done to explain the expected future projections of the nestle Malaysia Berhad. The contemporary nestle issues affect the national and international policy in terms of resolving the issues like increase in digitization, lack of strategic fit and funds. As the population increases, competition regarding public and private organizations is also increasing. Consumers want the quick response and compare the available healthcare products to. These issues are increasing day by day, thus the health care reforms are very important to be discussed. To address these arising issues it is important to consider the financial prospects. Management concerns regarding investment facilities needs to be addressed. Increase in the population means an expectation to increase the capacity of facilities.. Training and monitoring for the financial analyst staff should be organized on the continuous basis. References Hussainey, K., Mgbame, C. O., & Chijoke-Mgbame, A. M. (2011). Dividend policy and share price volatility: UK evidence. The Journal of Risk Finance, 12(1), 57-68 Malaysia Investment Development Authority. (2012). Investment for Transformation. Retrieved 26 June, 2014, from http://www.mida.gov.my/env3/uploads/PerformanceReport/2012/MIPR2012_ENG. pdf Malaysia Investment Development Authority. (2014). Food Technology and Sustainable Resources. Retrieved 3 March, 2014, from http://www.mida.gov.my/home/food-technology-and-sustainableresources/posts/. Malkawi, H. A. N. A., Rafferty, M., & Pillai, R. (2010). Dividend Policy: A Review of Theories and Empirical Evidence. International Bulletin of Business Administration, (9), 171-200. Mansfield, E. R., & Helms, B. P. (1982). Detecting Multicollinearity. The American Statistician, 36 (3), 158-160. 24

Mantalos, P. (2010). Robust Critical Values for the Jarque-bera Test for Normality. JIBS Working Papers No. 2010-8. Shalit, H (2012). Using OLS to test for normality. Statistics and Probability Letters, 82, 2050–2058. Sharma, R. (2012). Comparing and Analyzing Financial Statements to Make an Investment Decision: Case Study of Automotive Industry (Bachelor’s Thesis). Aasan Ammattikorkeakoulu University of Applied Science. Retrieved 6 June, 2014, from https://www.theseus.fi/bitstream/handle/10024/43723/SHARMA_RAJU.pdf? sequence=1. Salim, M., & Yadav, R. (2012). Capital Structure and Firm Performance: Evidence from Malaysian Listed Companies. Procedia - Social and Behavioral Sciences 6(3), 156-166. Silviana, & Rocky (2013). Analysis of Return on Asset and Earnings per Share on this Stock Market in the Banking Companies in Bursa Efek Indonesia (Indonesia Securities Exchange). Journal of Global Business and Economies, 7(1), 119. Traub, E. (2001). Using ROE to Analyze Stocks: What You Need To Know About. AAII Journal. Trueman, B., Wong, M. H. F., & Zhang, X. J. (2003). Anomalous stock returns around internet firms’earnings announcements. Journal of Accounting and Economics, 34(1-3), 249–271. Vogt, W. P., & Johnson, R. B. (2011). Dictionary of Statistics & Methodology: A Nontechnical Guide for the Social Sciences. (4th ed.). SAGE. Wahab, E. A. A., How, J., & Verhoeven, P. (2008). Corporate Governance and Institutional Investors: Evidence from Malaysia. Asian Academy of Management Journal of Accounting and Finance, 4(2), 67-90. Wet, J., & Mpinda, M. (2013). The Impact of Dividend Payments on Shareholders’ Wealth: Evidence from The Vector Error Correction Model. International Business & Economics Research Journal, 12(11), 1451-1465. Williams, A. S., & Shoesmith, F. (2010). Statistics for Business and Economics. (2nd ed.). United Kingdom. South-Western Cengage Learning. Wyss, R. V. (2012). Measuring and Predicting Liquidity in the Stock Market. (Doctoral dissertation). Retrieved 1 July, 2014, from http://www1.unisg.ch/www/edis.nsf/SysLkpByIdentifier/2899/$FILE/dis2899.pdf.

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