Food products: NESTLE PAKISTAN LIMITED - Analysis of Financial Statements Financial Year 2003 - Financial Year 2008
Nestle Pakistan Limited (NPL), formerly known as Nestle Milkpak Limited, is a subsidiary of Nestle SA. - a company of Swiss origin headquartered in Vevey, Switzerland. It is listed on the Karachi and Lahore stock exchanges.
For five years in a row, the company has won a place among top 25 companies of the KSE. Its principal activities include manufacturing, processing and selling food products and ancillary equipment. The food products include dairy, confectionery, infant nutrition and culinary products, coffee, beverage and drinking water.
The major brands include Milkpak UHT, Nestle Everyday, Lactogen and Nescafe. Nestle has been serving Pakistani consumers since 1988, when its parent company, the Switzerland-based Nestle SA, first acquired a share in Milkpak Ltd In line with its parent company's global philosophy, it is proudly committed to excellence in product safety, quality, and value.
FINANCIAL PERFORMANCE FY03-FY08
Total sales for Nestle Pakistan rose by 21% in FY08 from a previous Rs 28.2bn to Rs 34.2bn. Increase in sales was contributed by all the three Nestle ventures: milk and nutrition products (21.4% YoY rise), beverages (19.5% YoY increase) and other operations (16.9% YoY climb) as exhibited by the chart above. An assessment of Nestle's profitability as demonstrated by the diagram below shows a general declining trend in all profitability ratios. The profit margin fell from 6.39% in FY07 to 4.54% in FY08, showing a YoY fall of 1.85%. The gross profit margin fell from 28% in FY07 to 26% in FY08 delineating a 2% fall. This was due to the fact that although the turnover rose by 21%, the cost of goods sold rose by 24% contributing to the decline in the gross profit margin.
Operating profit margin also slid from 12.44% in FY07 to a 12.01% in FY08, which isn't a substantial decline. An overview of the Return on Assets (ROA) and Return on Equity (ROE) forged a similar downward trend thereby straining the profitability of Nestle. ROA fell from 11.4% in FY07 to 9.3% in FY08 attributed to a 14% slide in profit after tax accompanied by a 5.2% rise in total assets between FY07 and FY08. ROE statistics indicate a decline from 43.9% in FY07 to 30.22% in FY08 as the total equity rose from Rs 4.1bn in FY07 to Rs 5.1bn in FY08. This 25% spate in total equity was compounded by 14% fall in the profit after tax in FY08.
Quick ratio slightly fell from 0.47 in FY07 to 0.45 in FY08 and can safely be regarded as an insignificant decline. The current ratio however rose from 0.94 in FY07 to 1.07 in FY08 as the current assets rose by 1% against an 11% decline in current liabilities. This decline in liabilities is registered on the back of a sharp decline in short-term borrowings (FY07: Rs 1.035bn to FY08: Rs 0.3bn) and a decline in trade and other payables. Therefore, we can conclude that the liquidity orientation of Nestle Pakistan is more or less the same between FY07 and FY08.
The inventory turnover fell from 36 days in FY07 to approximately 35 days in FY08 which means it took Nestle and average of 35 days to convert its inventories into cash. Day Sales Outstanding rose from 4.39 days in FY07 to 4.81 days in FY08. Since there isn't much variability in the DSO, it can be concluded that the collection policy from the debtors hasn't changed much. Consequently, the Operating cycle fell from 40.5 days in FY07 to 39.5 days. Inventories rose by 16% during the same period.
Moving further, we see that the Total Asset Turnover for Nestle rose from 1.78 in FY07 to 2.05 in FY08 indicating that the turnover grew at a faster rate of 21% whereas the asset base during the same period grew by a lower 5%. Sales to Equity Ratio fell from 6.87 in FY07 to 6.65 in FY08. Once again, all ratios for FY08 indicate negligible change in Nestle's performance on the asset management front, which is more or less the same as FY07.
The debt to asset ratio stood at 0.74 and remained unchanged between FY07 and FY08. The debt to equity ratio fell by 16% from 2.85 in FY07 to 2.39 in FY07 whereas, the long-term debt to equity ratio fell from 1.4 to 1.36. This was due to the fact that both, long-term debt and equity rose by 21.4% and 25%, respectively. Total equity gradually grew with all its components the same as FY07 with the exception of accumulated profits, which rose. The Times Interest Earned (TIE) ratio also faintly fell from 5.36 times to 5 times.
Market ratios indicate a 14% decline in Earnings Per share, which fell from Rs 39.81 per share in FY07 to Rs 34.24 per share in FY08. Dividend per share also dipped by a 25 % falling from Rs 10 per share dividend in FY07 to Rs 7.5 per share dividend in FY08. Despite the descent in both, EPS and DPS, the book value per share for Nestle Pakistan registered a 24.98% increase from its value of Rs 90.67 at year-end FY07 to Rs 113.32 at the close of FY08. This rise can largely be accounted for by a 5.27% increase in total assets without any change in the number of issued ordinary shares.
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NESTLE PAKISTAN LIMITED (NPL) - FINANCIALS
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Balance Sheet (PKR '000) 2003 2004 2005 2006 2007 2008
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Property, plant and equipment 2,149,781 2,351,281 3,298,880 6,941,332 9,074,428 9464373
Capital work-in-progress 294,480 824,595 1,788,475 1,107,052 971,183 1382401
Long term loans and advances 11,013 20,287 47,691 66,008 80,670 49744
Long term security deposits 4,314 5,036 5,338 6,088 6,088 5036
Total non-current assets 61,238 71,234 230,687 207,116 179,140 153324
Stores and spares 205,443 261,852 249,921 329,346 436,573 804647
Stock in trade 863,136 1,693,783 1,492,983 1,907,300 2,393,306 2488573
Trade debts 28,906 30,806 47,298 238,291 344,053 456813
Advances, deposits, 146,491 281,297 916,331 2,109,314 2,022,387 1488103
prepayments, other receivables
Cash and bank balances 62,675 93,338 858,995 34,663 406,225 419327
Total current assets 1,334,744 2,364,112 3,569,152 4,627,685 5,623,823 5684078
Total Assets 3,840,243 5,611,222 8,887,214 12,927,902 15,848,574 16684176
Total non-current liabilities 1,139,382 1,748,141 2,610,132 5,172,334 5,758,347 6988758
Total current liabilities 1,496,740 2,302,851 4,413,700 5,224,488 5,978,522 5306571
Total liabilities 2,636,122 4,050,992 7,023,832 10,396,822 11,736,869 12295329
Total Equity 1,204,121 1,560,230 1,863,382 2,531,080 4,111,705 5138847
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Income Statement (PKR '000) 2003 2004 2005 2006 2007 2008
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Sales - net 10,461,254 12,801,355 17,142,363 22,030,958 28,235,393 34183847
Cost of goods sold (7,446,497) (9,242,534) (12,354,618) (15,778,330) (20,291,270) -25231532
Gross profit 3,014,757 3,558,821 4,787,745 6,252,628 7,944,123 8952315
Profit from operations / EBIT 1,211,942 1,474,348 1,817,184 2,453,229 3,134,190 2784809
Finance cost (61,480) (59,024) (180,108) (447,774) (584,434) -557325
Profit before taxation 1,150,462 1,415,324 1,637,076 2,005,455 2,549,756 2227484
Taxation (391,625) (425,392) (484,145) (642,165) (744,544) -674590
Profit after taxation 758,837 989,932 1,152,931 1,363,290 1,805,212 1552894
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PROFITABILITY RATIOS 2003 2004 2005 2006 2007 2008
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Profit Margin 7.25% 7.73% 6.73% 6.19% 6.39% 4.54%
Gross profit margin 28.82% 27.80% 27.93% 28.38% 28.14% 26.19%
Return on Assets 19.76% 17.64% 12.97% 10.55% 11.39% 9.31%
Return on Equity 63.02% 63.45% 61.87% 53.86% 43.90% 30.22%
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LIQUIDITY RATIOS 2003 2004 2005 2006 2007 2008
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Quick Ratio 0.18 0.18 0.41 0.46 0.47 0.45
Current Ratio 0.89 1.03 0.81 0.89 0.94 1.07
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ASSET MANAGEMENT RATIOS 2003 2004 2005 2006 2007 2008
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Inventory Turnover(Days) 36.77 55.00 36.60 36.55 36.08 34.68
Day Sales Outstanding (Days) 0.99 0.87 0.99 3.89 4.39 4.81
Operating cycle (Days) 37.77 55.86 37.60 40.44 40.47 39.49
Total Asset Turnover 2.72 2.28 1.93 1.70 1.78 2.05
Sales/Equity 8.69 8.20 9.20 8.70 6.87 6.65
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DEBT MANAGEMENT RATIOS 2003 2004 2005 2006 2007 2008
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Debt to Asset 0.69 0.72 0.79 0.80 0.74 0.74
Debt to Equity Ratio 2.19 2.60 3.77 4.11 2.85 2.39
Long Term Debt to Equity 0.95 1.12 1.40 2.04 1.40 1.36
Times Interest Earned 19.71 24.98 10.09 5.48 5.36 5.00
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MARKET RATIOS 2003 2004 2005 2006 2007 2008
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Earning per share 16.76 21.87 25.42 30.06 39.81 34.24
Dividend per share 4.00 5.00 15.00 5.00 10.00 7.50
Book value per share 26.60 34.46 41.09 55.81 90.67 113.32
No of Shares issued (in thousands) 45273.00 45273.00 45349.60 45349.60 45349.60 45349.60
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Market prices(Year End) 376.00 520.00 770.00 1045.00 1547.50
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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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