This report is about two of the companies in alcohol industry which are Carlsberg Brewery Malaysia Berhad and Guinness Anchor Berhad. The background of both of the companies will be reported at first. Next, analysis of the financial reports of two recent years which are 2008 and 2009 for the companies was done. The analysis is shown in financial ratios. Then, the critical issues of the companies were getting from news in Malaysia. Lastly, our group members had given some suggestions as the conclusion of this report.
Background of the Companies
Carlsberg
The company integrated in December 1969. In 1972, Carlsberg Brewery Malaysia Berhad (Carlsberg Malaysia) started to brew Carlsberg Green Label beer. It then gained more than 50% of market share in Malaysia Beer Market. Carlsberg Malaysia is scheduled under the consumer products sector on the Main Board of Bursa Malaysia Securities Berhad (Malaysia Stock Exchange). The products of the company includes Carlsberg Gold, SKOL beer, Carlsberg Special Brew, Corona Extra, Carlsberg Green Label, SKOL Super beer, Danish Royal Stout, Tuborg beer, Tetley's, Jolly Shandy Lemon and Peach. Besides, there is also non-alcoholic Nutrimalt drink.
Guinness Anchor Berhad (GAB)
On 24th January 1964, GAB integrated 1964 with the name of "Guinness Malaysia Limited". The Company altered its name to "Guinness Malaysia Berhad" on 15th April 1966. GAB assumed its present name on 15th November 1989. Since 1965, GAB has been listed on the Main Board of Bursa Malaysia. GAB is the market leader of the Malaysian beer and stout industry, where it captured 57% of the market share. The products of GAB are Heineken, Anglia Shandy, Anchor Strong, Anchor Smooth, Tiger, Kilkenny, Guinness and Malta.
Both of the companies have same major competitors in international which are Heineken, Budweiser, Stella Artois, Tennent's and much more. But for Malaysia, there is only Napex Corporation since 2007. The industry trends of alcoholic drinks growth slowly in 2009 compare to 2008 because the customers are decreasing their expenses on alcoholic drinks.
Ratio Analysis
Company
Carlsberg Malaysia
Guinness Anchor Bhd
Year
2009
2008
2009
2008
Short-term Solvency
Current ratio
1.12
3.24
2.37
2.15
Acid test ratio
0.96
2.78
1.97
1.80
Average collection period
59.45
52.91
52.59
46.48
Days payable outstanding
56.16
42.88
39.68
44.47
Asset Management Efficiency
Accounts receivable turnover
6.13
6.90
6.94
7.85
Inventory turnover
12.62
10.05
13.44
13.34
Payables turnover
6.5
8.51
9.2
8.21
Total assets turnover
1.11
1.53
1.99
1.92
Debt Financing Coverage
Debt ratio
0.45
0.25
0.32
0.34
Debt to equity
0.83
0.34
0.46
0.52
Financial leverage index
1.88
1.33
1.45
1.55
Times interest earned
-
-
257.19
274.46
Overall Efficiency and Performance
Net profit margin
0.07
0.08
0.11
0.105
Cash flow margin
0.10
0.11
0.09
0.13
Return on total assets
0.08
0.12
0.22
0.20
Return on equity
0.15
0.16
0.32
0.31
Show that it has a better term between those 2 years in the company.
Interpretation:
Carlsberg
1. Short Term Solvency
Current ratio
09: For every RM the company owes, the company has RM1.12 in its asset.
08: For every RM the company owes, the company has RM 3.24 in its asset.
Acid test ratio
09: For every RM the company owes, the company has RM 0.96 in its asset excluding the
inventories.
08: For every RM the company owes, the company has RM 2.78 in its asset excluding the
inventories.
Average collection period
09: The company takes an average of 59.45 days to convert receivables into cash.
08: The company takes an average of 52.91 days to convert receivables into cash.
Days payable outstanding
09: The company takes an average of 56.16 days to pay.
08: The company takes an average of 42.88 days to pay.
2. Asset Management Efficiency
Accounts receivable turnover
09: The company takes 6.13 times to collect receivables during a year.
08: The company takes 6.90 times to collect receivables during a year.
Inventory turnover
09: The company takes 12.62 times to sell its inventory in a year.
08: The company takes 10.5 times to sell its inventory in a year.
Payables turnover
09: The company takes 6.5 times to pay back its suppliers.
08: The company takes 8.51 times to pay back its suppliers.
Total assets turnover
09: Every ringgit of total asset generates RM1.11 sales.
08: Every ringgit of total asset generates RM1.53 sales.
3. Debt financing coverage
Debt ratio
09: Every dollar of total assets, the company uses RM0.45 is financed with debt.
08: Every dollar of total assets, the company uses RM0.25 is financed with debt.
Debt to Equity
09: The company has RM0.83 of debt and RM1 of equity to finance its assets.
08: The company has RM0.34 of debt and RM1 of equity to finance its assets.
Financial leverage index
09: A 100% increase in return on assets of the firm will result in 188% in the return on equity.
08: A 100% increase in return on assets of the firm will result in 133% in the return on equity.
Times Interest Earned
For both of the years, times interest earned were unable to be determined as the interest expense cannot be determined. Therefore, they cannot be interpreted.
4. Overall Efficiency and Performance
Net profit margin
09: The company generates 7% of net profit from net sales, after the company has paid
all the expenses including interest and taxes.
08: The company generates 8% of net profit from net sales, after the company has paid
all the expenses including interest and taxes.
Cash flow margin
09: The company generates 10% of cash from the sales.
08: The company generates 11% of cash from the sales.
Return on total assets
09: For every RM100 of total assets, the company has a return RM8 net profit.
08: For every RM100 of total assets, the company has a return RM12 net profit.
Return on equity
09: For every RM100 of shareholders' equity, the company has generates RM15 net
profit.
08: For every RM100 of shareholders' equity, the company has generates RM16 net
profit.
Guinness Anchor Bhd
1. Short Term Solvency
Current ratio
09: For every ringgit the company owes, the company has RM 2.37 in its asset.
08: For every ringgit the company owes, the company has RM 2.15 in its asset.
Acid test ratio
09: For every RM the company owes, the company has RM 1.97 in its asset excluding the
inventories.
08: For every RM the company owes, the company has RM 1.80 in its asset excluding the
inventories.
Average collection period
09: The company takes an average of 52.59 days to convert receivables into cash.
08: The company takes an average of 46.48 days to convert receivables into cash.
Days payable outstanding
09: The company takes an average of 36.68 days to pay.
08: The company takes an average of 44.47 days to pay.
2. Asset Management Efficiency
Accounts receivable turnover
09: The company takes 6.94 times to collect receivables in a year.
08: The company takes 7.85 times to collect receivables in a year.
Inventory turnover
09: The company takes 13.44 times to sell its inventory in a year.
08: The company takes 13.34 times to sell its inventory in a year.
Payables turnover
09: The company takes 9.2 times to pay back its suppliers.
08: The company takes 8.21 times to pay back its suppliers.
Total assets turnover
09: Every ringgit of total asset generates RM1.99 sales.
08: Every ringgit of total asset generates RM1.92 sales.
3. Debt financing coverage
Debt ratio
09: Every dollar of total assets, the company uses RM0.32 is financed with debt.
08: Every dollar of total assets, the company uses RM0.34 is financed with debt.
Debt to Equity
09: The company has RM0.46 of debt and RM1 of equity to finance its assets.
08: The company has RM0.52 of debt and RM1 of equity to finance its assets
Financial leverage index
09: A 100% increase in return on assets of the firm will result in 145% in the return on equity.
08: A 100% increase in return on assets of the firm will result in 155% in the return on equity.
Times Interest Earned
09: For every dollar of interest, the company has RM257.19 of operating earnings
available to pay.
08: For every dollar of interest, the company has RM274.46 of operating earnings
available to pay
4. Overall Efficiency and Performance
Net profit margin
09: The company generates 11% of net profit from net sales, after the company has paid all the expenses including interest and taxes.
08: The company generates 10.5% of net profit from sales, after the company has paid all the expenses including interest and taxes.
Cash flow margin
09: The company generates 9% of cash from the sales.
08: The company generates 13% of cash from the sales.
Return on total assets
09: For every RM100 of total assets, the company has return of RM22 net profit.
08: For every RM100 of total assets, the company has return of RM2 net profit.
Return on equity
09: For every RM100 of shareholders' equity, the company has generates RM32 net
profit.
08: For every RM100 of shareholders' equity, the company has generates RM31 net
profit.
Critical Issues
Current economic situation
Carlsberg
Carlsberg Malaysia have make profit in year 2008 although the company have experience loss contract of the manufacturing export business to Carlsberg Singapore. The increase in profit mainly contributes by the positive growth in the domestic stout duty paid and beer sales.
In year 2009, Carlsberg Malaysia have expand its business further by acquire a subsidiary, Carlsberg Singapore Pte. Ltd, for a purchase consideration of RM 370 million from its immediate holding company, Carlsberg Breweries A/S. Carlsberg Malaysia profit has first time in the Group's history breaking RM1.0 billion levels.
The Group's revenue for the first quarter ended 31 March 2010 increased by 30.6% compared to the corresponding quarter in the previous year. Arising from the higher revenue mentioned above, the Group's Profit before Tax for the quarter of RM49.2 million was 67.4% or RM19.8million higher than the same period last year.
GAB
Year 2008, the market outlook was challenged by escalating prices of raw materials and components of brewing, both the prices has been increased.
Year 2009, revenues and pre-tax profit were decreased. It is because sales were impacted due to earlier timing of Chinese New Year. Besides, GAB was spending RM 10 million on marketing activities to commemorate the 250th anniversary of Guinness, and more than RM 10 million on FIFA World Cup 2010 promotion activities.
Competition
In Malaysia, Ministry of International Trade and Industry has licensed and approved only two breweries in accordance with the Industrial Co-ordination Act 1975 (ICA) operating in local malt liquor market which are Carlsberg Malaysia and Guinness Anchor Berhad. Mean while, during year 2007, there was another one new brewery, Napex Corporation , which was licensed by the Customs commercial operations to manufacture and distribute a local beer brand.
Tax Regulation
There was a decrease in corporate tax rate from 26% in year 2008 to 25% in year 2009.
There are two segments in Malaysian malt liquor which are the "Stout" and the "Beer". In year 2005, excise duty was raised by 23.3%, sales tax decreased to 5% of ex-brewery price of the goods and an "Ad Valorem" duty with 15% ex-brewery price was set up. Beer's import duty is RM5.00 per liter. Tax-paid beer and stout volumes have declined by 14 per cent following consecutive excise tax increases in 2003, 2004 and 2005.
Due to the late timing of the Budget 2010 announcement, there led to decline of 17.7% in revenue to RM 300.9 million while pre tax dropped from 43.4% to RM35.8 million. In year 2009, governments have prohibited liquor and tobacco companies from sponsoring any concert, performance, or show-alike.
Litigation
Breweries companies that operating in Malaysia malt liquor market are required to register with Industrial Co-ordination Act 1975 (ICA) or by customs commercial operations.
Corporate Social Responsibilities (CSR) and Public Concerns
Carlsberg
A CSR governance structure, which supported by the Group CSR Steering Committee and CSR unit had been set-up in 2008 in order to ensure the effective development and implementation of the Group CSR strategy. Besides that, Carlsberg Malaysia has established a CSR Committee of local CSR champions comprising heads of various functions to drive the strategic establishment and development of the global CSR strategy locally to complement the efforts by the Group. The company was one out of several breweries amongst the Carlsberg Group's companies that participated in the anti-global warming movement, for both Earth Hour 2008 and 2009.
Besides, Carlsberg Malaysia was the first and only brewery in Malaysia that supported the Penang Government's "No Plastic Bags on Monday" campaign by offering an exclusive Carlsberg eco-friendly bag to customers who purchased a carton of Carlsberg beer at participating supermarkets in Penang.
In year 2008, an investment of RM 0.5 million was made to upgrade the plant, simultaneously increasing biogas generation which is channeled to the dual fuel boiler to reduce depletion of non renewable resources, natural gas or fossil fuel.
GAB
In Year 2008, GAB initialed Dragon Mission, as known as Community fund-raising in supporting the advancement of Chinese education in Malaysia. Other than that, GAB launches SMILES (a corporate social responsibilities programme for Indian community)
In Year 2009, GAB launched its own GAB's Academy, which serves as a trade engagement programme for its partners in the hospitality and as well as food and beverage sector.
Future Growth
Escalating material costs have been a major concern but will still continue to drive the initiatives to reduce the impact on profit margin.
Other than that, there is the hope of the industry that the Government, being aware that the excise duties in Malaysia are the second highest in the world after Norway, will not introduce further duty increases for a few years until such time the excise duties of neighboring countries catches up with Malaysia. The currently high excise duties commit or encourage smuggling. Meanwhile, Government should keep effective and improve the enforcement against smuggled beer products.
More investment stimulates into human resource department in terms of employee training to develop the skill base of the employees. Consistent training is an essential to equip them with the skills and knowledge to enhance their performances in the dynamic and challenging competitive environment. Competition in Malaysia is expected to remain extreme especially with the entrance of a 3rd brewery (Napex Corp) since year 2007.
Conclusion and Recommendations
Based on the ratio analysis, it shows that Carlsberg has a better term in year 2008 while GAB has better term in year 2009 with comparison between year 2008 and 2009. However, the ratios between both of the companies are mostly the same. This means that the market share of both of the companies is quite equal because they have only 1 same competitor in Malaysia which is Napex Corporation.
Even though Malaysia is a Muslim's country where Muslim cannot drink, it does not restrict the sale of alcoholic drinks. The target customers of those companies are non-Muslim. Therefore, to increase the profit of the companies, they may produce "halal" drinks where Muslim customers can buy and drink. They have to make sure that their products are consumed in a responsible manner such as price, quality and also quantity and also no inappropriate use of their products.
As a conclusion, an investor may invest in Carlsberg Brewery Malaysia Berhad. As an investor, we aim for a better return in future compare to now. Although the ratio analysis shows that it has a better term for year 2008 compare to year 2009, but the company shows a better future growth based on the critical issues we had discussed above.
Appendix
Carlsberg (RM)
1. Short-term Solvency
Current ratio = Current asset
Current liabilities
09 = 399 228 = 1.12
356 173
08 = 456 841 = 3.24
140 638
Acid test ratio = Current asset - Inventory
Current liabilities
09 = 399 228 - 58 590 = 0.96
356 173
08 = 456 841 - 66 297 = 2.78
140 638
Average collection period = Accounts receivable
Net sales/365
09 = 170 284 = 59.45
1 045 483/365
08 = 139 183 = 52.91
960 207/365
Days payable outstanding = Accounts payable
Average daily cost of sales
09 = 113 752 = 56.16
739 306/365
08 = 78 269 = 42.88
666 180/365
2. Asset Management Efficiency
Accounts receivable turnover = Net sales
Accounts receivable
09 = 1 045 483 = 6.13
170 284
08 = 960 207 = 6.90
139 183
Inventory turnover = Cost of goods sold
Inventories
09 = 739 306 = 12.62
58 590
08 = 666 180 = 10.05
66 297
Payables turnover = Cost of goods sold
Accounts payable
09 = 739 306 = 6.5
113 752
08 = 666 180 = 8.51
78 269
Total asset turnover = Net sales
Total assets
09 = 1 045 483 = 1.11
945 112
08 = 960 207 = 1.53
627 234
3. Debt Financing Coverage
Debt ratio = Total liabilities
Total assets
09 = 428 501 = 0.45
945 112
08 = 157 857 = 0.25
627 234
Debt to equity= Total liabilities
Stockholders' Equity
09 = 428 501 = 0.83
514 796
08 = 157 857 = 0.34
468 145
Financial leverage index = Return on equity
Adjusted return on assets
09 = 0.15 = 1.88
0.08
08 = 0.16 = 1.33
0.12
Times Interest Earned = Operating profit
Interest Expense
09 = 100 370 = ∞ (Infinite)
-
08 = 101 129 = ∞ (Infinite)
-
4. Overall Efficiency and Performance
Net Profit Margin = Net profit
Net sales
09 = 76 725 = 0.07
1 045 483
08 = 76 119 = 0.08
960 207
Cash flow margin = Cash flow from operating activities
Net sales
09 = 107 074 = 0.102
1 045 483
08 = 105 442 = 0.109
960 207
Return on total assets = Net earnings
Total assets
09 = 76 725 = 0.08
945 112
08 = 76 119 = 0.12
627 234
Return on equity = Net earnings
Stockholders' equity
09 = 76 725 = 0.15
514 796
08 = 76 119 = 0.16
468 145
Guinness Anchor (RM)
1. Short-term Solvency
Current ratio = Current asset
Current liabilities
09 = 410 002 = 2.37
172 801
08 = 391 655 = 2.15
181 849
Acid test ratio = Current asset - Inventory
Current liabilities
09 = 410 002 - 69 453 = 1.97
172 801
08 = 391 655 - 64 976 = 1.80
181 849
Average collection period = Accounts receivable
Net sales/365
09 = 185 190 = 52.59
1 285 423/365
08 = 152 134 = 46.48
1 194 602/365
Days payable outstanding = Accounts payable
Average daily cost of sales
09 = 101 493 = 39.68
933 473/365
08 = 105 641 = 44.47
867 077/365
2. Asset Management Efficiency
Accounts receivable turnover = Net sales
Accounts receivable
09 = 1 285 423 = 6.94
185 190
08 = 1 194 602 = 7.85
152 134
Inventory turnover = Cost of goods sold
Inventories
09 = 933 473 = 13.44
69 453
08 = 867 077 = 13.34
64 976
Payables turnover = Cost of goods sold
Accounts payable
09 = 933 473 = 9.20
101 493
08 = 867 077 = 8.21
105 641
Total asset turnover = Net sales
Total assets
09 = 1 285 423 = 1.99
646 150
08 = 1 194 602 = 1.92
623 449
3. Debt Financing Coverage
Debt ratio = Total liabilities
Total assets
09 = 203 849 = 0.32
646 150
08 = 212 115 = 0.34
623 449
Debt to equity= Total liabilities
Stockholders' Equity
09 = 203 849 = 0.46
442 301
08 = 212 115 = 0.52
411 334
Financial leverage index = Return on equity
Adjusted return on assets
09 = 0.32 = 1.45
0.22
08 = 0.31 = 1.55
0.20
Times Interest Earned = Operating profit
Interest Expense
09 = 188 776 = 257.19
734
08 = 165 222 = 274.46
602
4. Overall Efficiency and Performance
Net Profit Margin = Net profit
Net sales
09 = 141 988 = 0.11
1 285 423
08 = 125 857 = 0.105
1 194 602
Cash flow margin = Cash flow from operating activities
Net sales
09 = 121 193 = 0.09
1 285 423
08 = 156 126 = 0.13
1 194 602
Return on total assets = Net earnings
Total assets
09 = 141 988 = 0.22
646 150
08 = 125 857 = 0.20
623 449
Return on equity = Net earnings
Stockholders' equity
09 = 141 988 = 0.32
442 301
08 = 125 857 = 0.31
411 334
