Fsa project basic information required
- 1. BASIC INFORMATION REQUIRED Analyze the board of directors, the management and the sponsors of the company The Board of Directors currently comprises of an executive Chairman, Chief Executive/Managing Director, two executive and three non-executive directors. The Directors meet at least four times a year to review the progress and performance of the company. The Board has delegated the day-to-day operations of the company to the Managing Director. However, the Directors are equally accountable under the law for the proper handling of the Company’s affairs All the powers of the Board are being duly exercised and material decisions on transactions and regarding appointment, remuneration, employment and appointment of CEO, executive and non-executive directors, have been taken by the board of directors. They have effective and efficient management which is highly responsible and accountable to their specified departments. It enables them to perform routine operations in an excellent manner and generate high profits. Company information Nestlé Pakistan Ltd is a subsidiary of Nestlé S.A, a company of Swiss origin headquartered in Vevey, Switzerland. It is one of the leading food and beverage Company in Pakistan. It is a public limited company incorporated in Pakistan and its shares are traded on Pakistan Stock Exchange (previously on Karachi and Lahore stock exchanges). Its head office is located in Switzerland. The major activity of the Company is manufacturing, processing and sale of food products including imported products (dairy, confectionery, culinary, coffee, beverages, infant nutrition and drinking water etc). • VISION: “Nestlé’s vision is to be the globally recognized leading Nutrition, Health and Wellness Company. Nestlé Pakistan subscribes fully to this vision and the values that come with it.” • MISSION: “To positively enhance the quality of life of the people of Pakistan by all that we do through our people, our brands, products and our CSV activities.” • AMBITION: “Their ambition is to be the leading Nutrition, Health and Wellness Company in Pakistan.” Board of directors 1
- 2. Following are the Board of Directors of Nestle:- • Mr. Syed Yawar Ali (Chairman) • Mr. Bruno Olierhoek (Managing Director) • Mr. John Davis (Director) • Mr. Syed Hyder Ali (Director) • Mr. Osama Khalid Wheed (Director) • Mr. Pierre Schaufelberger (Director) • Mr. Naveed Ahmad Khan (Director) • Mr. Syed Babar Ali (Director) • Mr. John Martin Miller (Director) Management of the company Nestle consists of flat and matrix organizational structure. Its departments are divided functional and product wise. All products use different functional departments which consists of specific products departments within them. It has direct and indirect reporting system with their subordinates. As there is matrix form of organization, all employees have to report to two or more departments. The managing Director has a responsibility to report directly to the Head office in Switzerland and follow the guidance and objectives from their. Following are the different functional departments under the Managing Director: • Business Executive Managers • Head of Human Resource Department • Head of Sales Department • Head of Supply Chain Thus, they have highly efficient, responsible and accountable management. Audit committee The Audit Committee comprises three members including the chairman of the committee. All members are non-executive directors and one member is executive. The terms of reference of the committee, which is in line with the Code of Corporate Governance, has been presented and approved by the Board of Directors. • Syed Hyder Ali (Director and Chairman) • Syed Babar Ali (Director and member) • Naveed A. Khan (Director and Member & Secretary) Human resource and remuneration committee 2
- 3. • HUMAN RESOURCE:- Human Resource team has been thoroughly involved in the progress of the Nestle continuous excellence journey, by providing its support and guidance in maintaining employee engagement, people development processes and appropriate goal alignment. • REMUNERATION COMMITTEE:- The Company has established this committee in accordance with requirements of Code of Corporate Governance. All issues of remuneration are fully disclosed, deliberated and decided at the meetings of the Directors. • Syed Babar Ali (Director and Chairman) • Syed Hyder Ali (Director and Member) • Magdi Batato (Managing Director and Member) • Shahzad Umar (Head of Human Resources Secretary) Sponsors of the company Sponsors are not mentioned. Discuss if the company is a family business or a professionally run business Nestle Pakistan is professionally running business, a public company which shares are traded on Pakistan Stock Exchange. Analyze the pattern of shareholding including cross shareholding of the company There are 854 numbers of shareholders and shares held by them are 45,349,584. The numbers of shares traded are 35,577,464. The company is not involved in cross shareholding. Categories of shareholders • Directors CEO/Spouse/Minors 3
- 4. • Associated Companies Undertakings • NIT & ICP • Banks & Financial Institutions • Insurance Companies • Funds • Joint Stock Companies • Charitable Trust • Executives • Individuals • Foreign Investors • Others:- • Public Sectors Companies & Corporations • Shareholders’ Holding 10% Total shareholders are 854 and number of shares held by them are 45,349,584. Analyze the auditor report and the review of corporate governance • AUDIT REPORT:- The auditor states that the financial statement are prepared under appropriate accounting polices and applicable accounting standards and states the information as required by the companies ordinance 1984. Hence, all financial statements give true and fair view. • CORPORATE GOVERNANCE:- Their approach to corporate governance is based on strong principles and values which are set by the board of directors for management and employees. They have set their long term strategies and present strategies as well which include, long term performance, financial planning reviews, audit process, compliance with laws and regulations, performance goals, managing director nomination, evaluation, setting compensation and succession plans. It also oversees social, economic and environmental sustainability. Analyze the transaction between related parties especially with regard to donations/ sales and purchases They have healthy relationships with their suppliers which benefits them with low rates and quality raw material. They have good relationships with their customers as well due to which it ranks on high level of customer satisfaction. There are transactions with associates and joint ventures. There are no significant transactions between the Group companies and associates. Their main transactions are with joint ventures, regarding loans. 4
- 5. Transaction with related parties The company in the normal course of business carries out transactions with various related parties. There are transactions with associates, Nestle S.A (holding company), subsidiaries, employee’s retirement benefit funds, key management personnel, donations, insurance claims, and joint ventures. There are no significant transactions between the Group companies and associates. Their main transactions are with joint ventures, regarding loans. Do you think under the above analysis the financial performance (sales, profit, asset growth, expansion strategy) of the company make sense. Being a leading food and beverages company, there is great increase in sales every year of Nestle. The overall profit margin shows increase which is the good sign for the company. Due to its effective infrastructure which supports future growth, there is a good increase in performance of Nestle. They are using their assets very effectively which enables and returning them with high generation of revenues and become leading food company in Pakistan. Good food good life is not just the part of their logo; they make sure that they follow this principle. There strategy is to provide finest quality product, this is the reason why consumers love Nestle products. They are whole heartedly committed to their obligation to satisfy their customers. They take extra care of their customers which is their secret to success. Such factors lead to the higher profits and expansion of business. Hence, their efforts for the upcoming years show that there will be a favorable increase in sales. REPORT 5
- 6. In Activity ratio, The Inventory turnover in 2015 is 7.158 and in 2014 is 7.817 The Inventory days in 2015 is 50.989 and in 2014 is 46.696 The Receivable turnover ratio in 2015 is 124.283 is and in 2014 is 127.180 The receivable days in 2015 is 2.937 and in 2014 is 2.870 The total assets turnover in 2015 is 2.090 and in 2014 is 1.865 The operating cycle in 2015 is 53.159 and in 2014 is 48.561 Interpretation:- Activity ratios shows the effectiveness of business in putting its asset investment to use. The comparisons shows that the business is more efficient in 2015, as its inventory turnovers seems to be more favorable than in 2014. The receivable turnover in days in both the years is showing almost the same results which is safe and sound. The operating cycle is also in a stable position in both the years. In Liquidity ratio, The current ratio in 2015 is 0.717 and in 2014 is 0.663 The Quick ratio in 2015 is 0.043 and in 2014 is 0.035 The Cash ration in 2015 is 0.010 and in 2014 is 0.008 Interpretation:- Liquidity ratios shows the ability of the business to meet its short term immediate obligation. In term of current ratio and quick ratio, results are showing the negative signs in both the years as it’s less than 1. The company should take immediate measures in terms of its liquidity otherwise it would face severe problems In Solvency ratio, The debt to assets ratio in 2015 is 0.743 and in 2014 is 0.563 The long term debt to assets ratio in 2015 is 0.162 and in 2014 is 0.134 The Debt to equity ratio in 2015 is 2.898 and in 2014 are 3.097 The financial leverage in 2015 is 3.898 and in 2014 are 4.097 The Interest coverage ratio in 2015 is 9.463 and in 2014 are 6.547 Interpretation:- Solvency ratios shows the ability of the business to satisfy debt obligation. In terms of debt to asset ratio and long term debt to assets ratio, its high in 2015 which there are large portion of assets which are financed by debt as compared to 2014 and in term of interest coverage, 2015’s ratio is more efficient. In Profitability ratio (Margin), The Gross profit margin ratio in 2015 is 0.331 and in 2014 is 0.283 The Operating profit margin ratio in 2015 is 0.158 and in 2014 is 0.146 6
- 7. The Net profit margin ratio in 2015 is 0.085 and in 2014 is 0.082 The pretax profit margin ration in 2015 is 0.122 and in 2014 is 0.114 Interpretation:- In terms of profitability ratios (Margin), 2015’s ratios are more favorable than in 2014 as its high in 2015 which they are more effective and efficient in 2105 in terms of generating high revenues. In Profitability ratio (Return), The Operating return on assets in 2015 is 0.331 and in 2014 is 0.273 The Return on Assets in 2015 is 0.331 and in 2014 is 0.273 The Return on Equity in 2015 is 0.693 and in 2014 is 0.268 Interpretation:- In terms of profitability ratios (return), the ratios, operating return on assets, return on assets and return on equity is high and more favorable in 2015, which means the efficiency of business in generating returns have been increased as compared to the previous year which is 2014. In Shareholder/Investor ratios, The Interest coverage ratio in 2015 is 9.463 and in 2014 is 6.547 The dividend coverage ratio in 2015 is 1.016 and in 2014 is 1.128 The Earning per share in 2015 is 193.185 and in 2014 is 174.846 The dividend per share in 2015 is 190.066 and in 2014 is 155.073 The dividend yield in 2015 is 84.474 and in 2014 is 70.488 Interpretation:- In terms of shareholder’s ratios, the business has more capacity to cover its interest cost in 2015. Dividend coverage ratios in both the year are showing safe position of the business as it’s more than 1 which seems to be sound. The earning per share, dividend per share and dividend yield ratios are showing more favorable results in 2015 which shows that the business is effective at managing its dividend portion. Its dividend yielding capacity in relation to the market price of the share and ability of the business to pay dividend is increasing in 2015. In Cash flow ratios, The Operating cash flow ratios in 2015 is 0.161 and in 2014 is 0.152 The Assets efficiency ratios in 2015 is 0.337 and in 2014 is 0.283 The Current liability coverage ratios in 2015 is 0.661 and in 2014 is 0.528 The long term debt coverage ratios in 2015 is 2.076 and in 2014 is 2.110 The Interest coverage ratio in 2015 is 11.897 and in 2014 is 8.484 7
- 8. The cash generating power ratios in 2015 is 0.979 and in 2014 in 0.777 Interpretation:- In terms of cash flow ratios, the results are showing that the company in 2015 is efficiently using its assets to generate cash flow, the ability of the company to make interest payments on its entire debt loads is increasing, and the capacity of the company to generate cash from operations is also increasing which is a very good sign. Thus, in terms of cash flow ratios, the company is showing more favorable results in 2015. DUPONT ANALYSIS (COMPARISON BETWEEN 2014 AND 2015) “DuPont Financial Analysis Model is a rather straightforward method for assessing the factors that influence a firm’s financial performance.” Nestle is a well performing and leading food and beverage company in Pakistan, therefore there is always a good increase in its financial performance every year. As we have compared two years of Nestle in terms of DuPont analysis, so the performance in 2015 is much better than 2014. The return on equity is 82% in 2015 which is a very positive sign for the company. And in 2014, its 73% which is also good but the most favorable is the higher one which is 82% in 2015. It means that the company is earning good net profit margin and generating enough revenue to cover its costs and expenses. The company is efficiently using its debt and assets to generate high profits, returns and revenues. Thus, the performance of the company is enhancing in 2015 as compared to the previous year which means that it is efficient in managing its resources to generate high turnovers. VERTICLE ANALYSIS (COMPARISON BETWEEN 2014 AND 2015) 8
- 9. Vertical common-size analysis uses the aggregate value in a financial statement for a given year as the base, and each account’s amount is restated as a percentage of the aggregate. In terms of vertical analysis, the comparison between two years shows that there is a slightly increase in the equity invested in the business in 2015. The company have largely overcome its long and short term finances but its trade payables have increased in 2015 which means that its credit purchases have increased. In terms of assets, there is an increase in fixed assets which means that the company has made additions in its fixed assets. The percentage of cash and bank balances has increased in 2015 which is also a positive sign for the business. In terms of income statement, the percentage of cost of goods sold is decreasing in 2015 which means that the company is efficiently managing its cost due to which its gross profit is increasing which is good sign. The company is effectively managing its finance cost but its operating expenses are increasing with a high percentage which is a negative sign (in 2015). It needs to focus on this portion otherwise it can face issues in future. However, the overall, net profit of the business is increasing in 2015. HORIZONTAL ANALYSIS (COMPARISON BETWEEN 2013, 2014 AND 2015) Horizontal common-size analysis uses the amounts in accounts in a specified year as the base, and subsequent years’ amounts are stated as a percentage of the base value. In terms of horizontal analysis, there is a comparison between 2013, 2014 and 2015. The amount of equity invested in 2015 is increasing which means that more capital is being invested into the business. However, the long term finances are increasing rapidly which can be a negative sign for the business and due to high interest cost its tax expense seems to be decreasing. The long term finance has largely overcome in 2015. The inventory and fixed assets is showing a decrease in 2015 but there is a great increase in percentage of cash and bank balances which seems to be sound for the business. There is an increase in sales turnover but the company is inefficient in managing its operating expenses due to which it can face severe problems in future. FINDING REPORT BY AMNA ABRAR SUMMARY: Nestle Pakistan is at top because of high demand & promising quality they provide. Nestle has been performing very well. Through its effective marketing and a vast 9
- 10. sales and distribution network throughout the country, it ensure that its products are made available to consumers whenever, where ever and however. Nestlé has the unique ability to provide a complete range of food products, services and well- known brands to meet the needs of consumers around the world. Quality &sustainability is another factor that is giving nestle an edge against its competitors and therefore it is generating great turnovers and its financial performance is enhancing every year. CONCLUSION:- Nestlé’s earnings performance is good. The earnings growth has been generated internally from operations. Nestle management is key success factor of the company they are highly committed & they do not compromise on their tasks. After reviewing and evaluating the financial statements of the business, it is concluded that the Nestle Company is highly effective at utilizing its assets and cost management due to which it is generating high revenues. . This is the reason that Nestle is currently on the top in food and beverages companies and it is ranked among the companies earning higher revenues. Its ratios are showing favorable results. There is good and sound increase in sales of the company every year. The overall financial performance is going in upward direction which indicates that it will earn high sales and revenues in the future. RECOMMENDATIONS:- • Increase incentives & promotional activities • Training courses/workshops for team • Hiring of quality sales people • They should increase their product quality • Nestle Milk Pack should concentrate on all age groups (by showing its benefits) instead of concentrating just on child growth. FINDING REPORT BY ANOSHA LARAIB SUMMARY: Nestle Pakistan Ltd. is a part of the Nestle SA group which is one of the largest manufacturing companies in the world. Henri Nestle founded the company (with its headquarters in (Vevey, Switzerland) in 1867. In a span of 130 years the company 10
- 11. has ranked 26th among the world’s largest corporations. We have evaluated the financial performance of the Nestle Pakistan by using different analysis methods and came to know that its financial position and performance is increasing in a positive manner towards prosperity which is the reason that currently it is the most leading food and beverage company in Pakistan, having higher profits among the top leading companies. Conclusion:- We have concluded that Nestlé’s financial performance is going in favorable direction. The earnings growth has been generated internally from operations. Overall profit margin showed a slight increase but a slight decline in gross profit margin was witnessed. This was mainly due to cost pressure on some Product. By assessing Nestlé’s trend analysis, it can be estimated that Nestlé’s Sales and net income will grow significantly. Favorable ROE, which has increased in 2015 is a very good sign. Nestles efficiency ratios are acceptable as they are quite sound. Nestle have increased their dependency on debt to meets its obligations and to finance its capital expenditures over the period of time. Nestle Pakistan has maintained a firm position in the Pakistani foods market with the leading position in several categories and is expected to continue its strong operations on the basis of its current and past performance. So on the basis of detailed analysis of Nestle and its favorable earnings and growth potential, I expect that it will earn higher profits in future. RECOMMENDATIONS:- • Increase advertising & show your competitive edge • Increase loyalty of customer with brand through attractive packages • Keep the price low and affordable by the customers Increase its distribution network • Improve marketing strategy • Create strong brand loyalty among customers 11