Alcoholic and non-alcoholic products: MURREE BREWERY COMPANY LIMITED - Analysis of Financial Statements - Financial Year 2006 - 3Q - Financial Year 2011
Murree Brewery Company Limited was founded in 1860 and is based in Rawalpindi, Pakistan. It manufactures and sells alcoholic and non-alcoholic products in Pakistan and internationally. It is composed of three divisions: liquor, glass and tops division amongst which liquor is the most profit-making division. Below is a brief analysis of Murree Brewery's financial performance.
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COMPANY SNAPSHOT
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Name of company MURREE BREWERY COMPANY LIMITED
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Nature of Business Beverages
Ticker MUREB
Net Sales FY '10 Rs 2,578,533,000
Net Profit FY'10 Rs 315,329,000
Share price (avg. over Jul'09-Mar'11) Rs 87.50 per share
Market Capitalization as at 31st March 2011 Rs 1,429,772,604
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RECENT RESULTS (3Q11)
Gross sales of Murree Brewery in 3Q11 were at Rs 3,087 million increasing by 25.34% (previous Rs 2,463 million). Liquor, glass, and tops, all three divisions posting decent growth in their own accord to push the gross figure up. The company posted a gross profit of Rs 730.2 million increasing by 35.32% (9M10 Rs 539.6 million). Administrative expenses were in a check while the distribution expenses increased in line with rising fuel prices and aftermath of the floods that affected the distribution networks. Operating profit was at Rs 507.5 million increasing by 46.64% (9M10: Rs 346.1 million). Profit after tax was recorded at Rs 300.7 million increasing by 45.95% (9M10: Rs 206.1 million). Earning per share was recorded at Rs 17.36 (previous Rs 11.90).
Murree Brewery has diversified into the drinking water segment through acquisition. The new division by the name of Murree Sparkletts will surely add revenue to the company in the next fiscal year.
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Rupees in 000s 2009 2010 % Change
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TURNOVER 3,242,649 3,714,896 14.56
Duties and taxes 1,021,934 1,136,363 11.20
NET TURNOVER 2,220,715 2,578,533 16.11
COST OF SALES 1,591,385 1,777,770 11.71
GROSS PROFIT 629,330 800,763 27.24
Distribution cost 159,907 177,976 11.30
Administrative expenses 112,989 119,877 6.10
Other operating income 15,197 61,839 306.92
Other expenses 26,311 37,661 43.14
EBIT 345,320 527,088 52.64
Finance cost 4,466 2,507 -43.86
Profit before taxation 340,854 524,581 53.90
Provision for taxation 125,022 209,252 67.37
NET PROFIT 215,832 315,329 46.10
EPS 16.45 21.85 32.83
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The company showed a 16% increase in net turnover, from Rs 3.242 million in FY09 to Rs 3.714 million in FY10. However, the sales trend graph shows that 16% sales increase over FY09-10 was less than 30% increase over FY08-09. The company did not perform well in FY10 showing deficiencies in distribution system as well as impact of overall economic downturn.
The cost of sales increased by 11% from Rs 1.591 million in FY09 to Rs 1.777 million in FY10, indicating strong COGS management. The gross profit consequently increased from Rs 629 million in FY09 to Rs 800 million in FY10, registering a 27% increase. Distribution cost and administrative expenses increased by 11% and 6% respectively. Other income increased 307% causing EBIT to increase by 53% from Rs 345 million in FY09 to Rs 527 million in FY10.
Finance cost decreased by 44% due to retirement of short term running finance and consequent mark-up savings. However tax increased by 67% due to increase in current taxation, leading to an overall 46% increase in net profit from Rs 215 million in FY09 to Rs 315 million in FY10. This was reflected in 33% increase in EPS, from Rs 16.45 per share in FY09 to Rs 21.85 per share in FY10.
STOCK PERFORMANCE:
Stock returns volatility of weekly continuously-compounded returns shows that the standard deviation of these stock returns is 5.1%. The future stock returns are expected to vary with a standard deviation of 5.1%, showing the consistency and steadiness of stock returns.
Beta analysis results in a beta of 0.60 relative to a market beta of 1.00 as given by the slope of the trend line. This indicates stable stock returns based on a strong company bottom-line and sales growth. However, positive market conditions will not have a significant positive impact the performance of the company.
LIQUOR DIVISION
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Rupees in 000s 2009 2010 % Change
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TURNOVER 2,421,091 2,889,843 19.36
Duties and taxes 851,406 960,697 12.84
NET TURNOVER 1,569,685 1,929,146 22.90
COST OF SALES 1,029,449 1,265,476 22.93
GROSS PROFIT 540,236 663,670 22.85
Distribution cost 90,939 103,068 13.34
Administrative expenses 73,504 81,462 10.83
EBIT 375,793 479,140 27.50
Finance cost 4,580 1,620 -64.63
Profit before taxation 371,213 477,520 28.64
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Net turnover increased by 22.90% and cost of sales increased by 22.93%, leading to a 22.85% increase in gross profit from Rs 540 million in FY09 to Rs 664 million in FY10. This was reflected in 27.5% increase in EBIT. Finance cost pertaining to liquor division decreased by 64.63%, resulting in profit-before taxation increasing 28.64% from Rs 371 million in FY09 to Rs 477 million in FY10.
Production capacity of liquor division remained the same in FY10. Actual production of beer and non-alcoholic beverages and non-alcoholic products witnessed an increase of 22% and 3% respectively.
GLASS DIVISION
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Rupees in 000s 2009 2010 % Change
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TURNOVER 324,990 413,663 27.28
Duties and taxes 7,835 7,605 -2.94
NET TURNOVER 317,155 406,058 28.03
COST OF SALES 311,065 380,980 22.48
GROSS PROFIT 6,090 25,078 311.79
Distribution cost 1,672 1,860 11.24
Administrative expenses 13,397 15,610 16.52
EBIT -8,979 7,608 184.73
Finance cost 368 -592 -260.87
Profit before taxation -9,347 7,016 233.22
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Net turnover increased by 28.03% and cost of sales increased by 22.48% leading to an overall 311.79% increase in gross profit from Rs 6.09 million in FY09 to Rs 25.08 million in FY10. EBIT increased by 184.73% and finance cost decreased by 260.87%, thus leading to a 233.22% increase in profit before taxation, from loss of Rs 9.35 million in FY09 to a profit of Rs 7.02 million in FY10.
Glass melting capacity remained the same in FY10. However actual glass melted increased by 9.94%.
TOPS DIVISION
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Rupees in 000s 2009 2010 % Change
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TURNOVER 881,863 897,298 1.75
Duties and taxes 162,693 168,061 3.30
NET TURNOVER 719,170 729,237 1.40
COST OF SALES 644,101 617,222 -4.17
GROSS PROFIT 75,069 112,015 49.22
Distribution cost 67,296 73,048 8.55
Administrative expenses 20,626 22,805 10.56
EBIT -12,853 16,162 225.74
Finance cost 402 295 -26.62
Profit before taxation -13,255 15,867 219.71
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Net turnover increased by 1.40% and cost of sales decreased by 4.17% leading to an overall 49.22% increased in gross profit from Rs 75 million in FY09 to Rs 112 million in FY10. EBIT increased by 225% and finance cost decreased by 26.62% leading to 219.71% increase in profit before taxation from loss of Rs 13.26 million in FY09 to profit of Rs 15.87 million in FY10.
Apart from production capacity of tetra pack juices which increased from 12 million liters in FY09 to 30 million liters in FY10, production capacity of the rest of the products remained the same. Actual production of tetra pack juices decreased by 24%, juice (N.R) increased by 22% and malt extract increased by 54% in FY10.
RATIO ANALYSIS;
The gross profit margin increased from 28.34% in FY09 to 31.05% in FY10 indicating the efficient management of cost of goods sold. Net profit margin increased from 9.72% to 12.23% over the same period. Return on assets increased from 5.32 to 7.06 and return on equity showed an increase from 6.10 to 8.33, over the period FY09-10. These profitability ratios reflect improvements in the company's bottom-line. Total assets show a 10% increase and shareholders' equity shows a 22% increase over FY09-10. However a significant increase in net income at 46% resulted in increase of ROA and ROE.
The current ratio fell slightly from 2.79 in FY09 to 2.72 in FY10. There was a 32% increase in current assets driven by increase in inventory, prepayments and huge increase in cash/bank balances. However this was offset by the 36% increase in current liabilities, driven by the increase in trade payables, thus leading to slight decline in the current ratio. The liquidity position of the company remains strong.
Inventory turnover increased from 114.23 days in FY09 to 120.57 days in FY10. This indicates that FY10 was an inefficient year with respect to inventory management. The day sales outstanding decreased from 11.76 days in FY09 to 5.43 days in FY10, signifying stronger receivables management in FY10. Total asset turnover increased from 0.55 to 0.58 and sales to equity ratio increased from 0.63 to 0.68 over the period FY09-10. These ratios show that the company is generating sufficient sales, given in the investment in total assets and the shareholders' equity put into the company.
The debt to asset ratio increased from 0.13 in FY09 to 0.15 in FY10. This was because total liabilities increased by 29% over the period, driven by increase in payables and lease taken, and total assets increased by 10%, leading to slight increase in debt to asset ratio. Debt to equity ratio also increased from 0.15 in FY09 to 0.18 in FY10, caused by a greater 29% increase in liabilities compared to a 22% increase in equity. Long-term debt-to-equity increased from 4.37 in FY09 to 4.64 in FY10, due to increase in long-term liability driven by gain in finance lease and deferred staff retirement benefits.
Book value per share increased from Rs 89.70 per share in FY09 to Rs 99.68 per share in FY10 due to the addition to unappropriated profit over the years, reflecting ploughing back of funds into the company. The EPS likewise increased from Rs 16.45 per share in FY09 to Rs 21.85 per share in FY10, and average market price per share rose from Rs 75.89 per share to Rs 83.62 per share, over the same period. Price earnings ratio fell from 4.61 in FY09 to 3.83 in FY10, showing that the rise in market price was not able to cover the rise in EPS. A dividend of Rs 5 per share was proposed as a post balance sheet event.
FUTURE OUTLOOK:
The management aims to conduct the business based on cost efficiency and maximisation of resources, taking into account competition in the beverages sector. The company is continuing its policy of balancing and modernisation by reviewing production procedures replacing old machines and controlling costs.
COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi, prepared this analytical report for Business Recorder.
DISCLAIMER: No reliance should be placed on the [above information] by any one for making any financial, investment and business decision. The [above information] is general in nature and has not been prepared for any specific decision making process. [The newspaper] has not independently verified all of the [above information] and has relied on sources that have been deemed reliable in the past. Accordingly, the newspaper or any its staff or sources of information do not bear any liability or responsibility of any consequences for decisions or actions based on the [above information].
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