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Nestlé Philippines, Inc.

Analysis of Nestle Philippine's Audited Financial Statement 2013.
by

Em Dangla

on 16 November 2014

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Transcript of Nestlé Philippines, Inc.

Main competitors:

Principal Office:
Municipality of Cabuyao, Province of Laguna

Administrative Office:






Financial Auditors:
Sycip Gorres Velayo & Company, CPA’s

Total No. of Employees:
3,200 nationwide
Exports
amounted to Php51.6 billion with a robust
growth of 11.6% per annum
.

Shipments
consisted mainly of processed fruits and vegetables, fish and seafood preparations, sugars and sugar confectionery, cereal, flour, starch, milk preparations and products, and dairy products, and edible animal products.

Key markets
include the United States (US), Asian countries like Japan, South Korea, Indonesia, Malaysia, Thailand, Taiwan, Singapore and Vietnam, as well as countries in the Middle East such as Iran and the United Arab Emirates.

Imports grew
by
9.8% per year
to nearly Php86 billion.

The
leading product categories
include dairy products, eggs, honey, edible animal products, miscellaneous edible preparations, meat and edible meat offal, cereal, flour, starch, milk preparations and products, and milling products, malt, starches, inulin and wheat gluten.

The
major country suppliers
include New Zealand, Australia, US, India, Thailand and Ireland.

The
trade balance
has consistently been
negative
, with imports outpacing exports by nearly Php 34.4 billion per annum during the last five years.
1. Commonwealth Foods, Inc.
2. Philippines, Inc.
3. San Miguel Corp.
4. Universal Robina Corp.
1. Asia Brewery, Inc.
2. Coca-Cola Bottlers Philippines Inc.
3. Philippines, Inc.
4. Philippine Spring Water Resources Inc.
5. URC
6. Waters Unlimited, Inc.
1. Monde-Nissin Corp.
2. Philippines, Inc.
3. Nissin – URC
4. URC
5. Zest-O Corp.
1. Alaska Milk Corp.
2. Arce Dairy, Inc.
3. Fonterra Brands Philippines, Inc.
4. Kraft Foods (Philippines), Inc.
5. Magnolia, Inc.
6. Philippines, Inc.
7. New Zealand Creamery, Inc.
8. Unilever RFM Ice Cream, Inc.
9. Yakult Philippines, Inc.

Overview
Industry Profile
Company History
Financial Analysis
Management Profile
Organization Profile
Nestlé is the world's
leading Nutrition, Health and Wellness Company
. The company employs over
280,000 people worldwide
and has
443 factories
situated in
81 countries.

This report discusses about Nestlé Philippines, Inc.’s
company information
and
analysis
of the company’s
audited financial statement
for year ended
2013
.

Nestlé Philippines, Inc. is in the industry of
food processing
or
food and beverage manufacturing
.

Gross value added by food manufactures and beverage industries in the Philippines contributed
58% of total manufacturing output
and
11% of GDP
.
(Macabasco, 2011)

The industry has generally grown over the past five years, with
real growth of 4.8% per year
.

Total
family spending
on
processed foods and beverages
reached
12%
of the total family expenditure, and about 30% of the total family expenditure on food.
Financial Analysis Report, for year ended December 31, 2013
University of Santo Tomas – Graduate School
Reporters:
Arrieta, Mark Kenneth S.
Chua, Jane Nicole G.
Dangla, Ma. Marenza D.
Sablaon, Amy P.
Philippines, Inc.
Prof. Mercedes Hinayon
Principles of Accounting
Total Family Spending on Processed Foods & Beverages
(in million pesos)


Note:* Food not elsewhere classified; includes sugar products, cooking oil, margarine, sauces, other spices and seasoning and other food n.e.c
Source: of basic data: NSO Family Income and Expenditure Survey
Industry Players
There were
882 processed food and beverage establishments
according to the NSO's Annual Survey of Philippine Business Establishments.

There were some
80 processed food and beverage companies
included in the
Philippines' Top 1000 Corporations
.
Leading players in the processed food and beverage industry:
Processed foods
(Milk and dairy products)
Noodles & macaroni
Bottled water
Coffee
Trade
21.5
43
64.5
86
107.5
Value (Php billion)
Source of basic data: International Trade Centre (ITC)
In
1867
, at a time of high infant mortality,
Henri Nestlé
developed a milk-based food for babies unable to feed from their mothers.
The Company was forced to
suspend its operations
during
World War II (1939-1945)
, but soon made a comeback after Liberation, under a new name: 
Filipro, Inc

Filipro, Inc.
continued to
import
products such as
MILO
,
NIDO
powder milk,
MILKMAID
and
NESCAFÉ
from other countries.  
Milestones
1944
1950
1960
1962
1964
1972
1976
1977
1984
1986
1992
1998
2009
1911
1944
Nescafé

is introduced to the Philippines.
Early 1950's
Filipro, Inc.
encountered difficulties when the Philippine government imposed import control.

Due to lack of imported products to sell, it was forced to
become a distributor
of
peanut butter, napkins, fruit preserves, and patis (fish sauce)
just to keep its operations going.
1960
Nestle S.A and San Miguel Corporation Partnership resulting to a formation of Nutritional Products, Inc. (Nutripro, Inc.)
= Nutripro
+
1962
The first Nutripro factory (former name of Nestle Ph) in Alabang, Muntinlupa starts producing Nescafé.
1964
MILO Tonic Food Drink is introduced.
1972
NIDO Full Cream Milk Powder, the country’s first instant full cream milk, is launched.
1976
The Cabuyao factory, the Nestlé Export Center for infant nutrition, starts operations.
Filipro, Inc. & Nutripro, Inc. merged under the name of
1977
FILIPRO, INC.
1984
CDO, Misamis Oriental factory started its operations.
1986
Filipro, Inc. changed to its present name to
Nestlé Philippines, Inc.
1992
Lipa, Batangas factory started its operations.
1998
Nestle Philippines, Inc.
became a wholly owned subsidiary of Nestle S.A.
, following the latter's purchase of all San Miguel Corporation's equity shareholding in the company
2009
Pulilan, Bulacan factory started its operations.
1911
Nestle S.A.

and

Anglo Swiss Condensed Milk
company was established in the country.

First sales office in Calle Renta, Binondo, Manila starts doing business.

PRODUCTION CENTERS
RESEARCH CENTERS
Food:

Healthcare Nutrition:

Ice Cream:

Infant Nutrition:

Liquid Beverages & Dairy Culinary:

Nestlé Professional:

Petcare:
BRANDS LISTING
MISSION
VISION
“At Nestlé, we believe that
research
can help us make
better food
so that people live a
better life
. Good Food is the primary source of Good Health throughout life. We strive to bring consumers foods that are
safe
, of
high quality
and
provide optimal nutrition
to meet physiological needs.

In addition to
Nutrition
,
Health
and
Wellness
, Nestlé products bring consumers the vital ingredients of
taste
and
pleasure
. As consumers continue to make choices regarding foods and beverages they consume, Nestlé helps provide selections for all individual taste and lifestyle preferences.

Research is a key part
of our heritage at Nestlé and an essential element of our future. We know there is still much to discover about health, wellness and the role of food in our lives, and we continue to search for answers to bring consumers
Good Food for Good Life
.”
“Nestlé strives to be a
leader in nutrition
,
health
and
wellness
, with the belief that good food is central to health and wellness.

At the
Nestlé Research Center
, nutrition research meets
food innovation
to bring consumers of
all ages and stages of life
, foods and beverages that contribute to
health and wellness
, while offering
remarkable taste and convenience.

Beverages:

Breakfast Cereals:

Chilled Dairy:

Coffee & Creamer:

Confectionery:

Dairy Health & Nutrition:
Cabuyao, Laguna factory
Established in
1976
.
Located in a
25-hectare
land area in Barangay Niugan.
Nestlé’s
Export Center
for
infant nutrition products
.
Manufactures the
widest range of products
, including NAN, NESTOGEN, BEAR BRAND, NIDO,
NESVITA Milks, NESTLÉ ALL-
PURPOSE CREAM, Ready-to-Drink
MILO, BEAR BRAND and CHUCKIE.
Cagayan De Oro, Misamis Oriental, Mindanao Factory
Started operations in
1984
.
Built on a
25.67 hectare
land at Barrio Tablon.
Manufactures
NESCAFÉ
and
BEAR BRAND powdered milk drink.
The
Export Center
for
filled
milk powder
.
Lipa, Batangas Factory
Started operations in
1992
in Barangay Bagong-Pook.
Biggest land area of
29 hectares
.
Nestlé’s
Export Center
for
breakfast cereals
like NESTLÉ KOKO KRUNCH, MILO Balls, Honeystars, Snowflakes, Honey Gold, FITNESSE and its variants, Banana Nut Clusters, Almond Nut Clusters, Cookie Crisp and Cornflakes.
MILO production center
of the Philippines.
Also responsible for
packing COFFEE-MATE
and
coffee in jars.
Pulilan, Bulacan Factory
Located in Barangay Tibag.
Started
manufacturing NESTLÉ Ice Cream
and
Chilled products
in
2009
.
1
2
NEDF
LICC
Nestlé Experimental and Demonstration Farm (NEDF),Tagum City, Davao Del Norte
Built in 1994.
Hub of the Company’s agricultural research and training activities.
Aimed at helping farmers improve both the quality and quantity of their coffee yield.
Lipa Integrated Coffee Center (LICC), Lipa City, Batangas
Formally launched
mid-July of 2013
.
A
5-hectare
integrated
research center
for
coffee production
.
Serves as a
buying station for coffee beans
from farmers.
Houses nurseries for the production of
Robusta coffee seedlings
.

John Martin Miller
Peter Brabeck-Letmathe
Doreswamy Nandkishore
Queenie Phan
Sandra Puno
Chairman and CEO, Nestle Philippines
(October 1,2009 - Present)
Chairman of the Board of Nestle Philippines, Inc
Both Vice Chairman of Loreal and Credit Suisse Group
Foundation Board member of the World Economic Forum
Chairman of the 2013 Water Resources Group
Sr. VP and Global Business Head of Infant Nutrition at Nestle Philippines, Inc.
(October 1,2009 - Present)
Head of Corporate Purchasing
(April 2006 - Present)
Director of Communication
(Present)
Comparison Standards
The following standards are used for comparison when interpreting the measures from the Financial Statement analysis.

1.
Intracompany
based on the company’s own
prior performance
.

2.
Guidelines (Rules of Thumb)
based on the
general standards
of comparisons.
Areas & Tools of Analysis
Horizontal & Vertical Analysis
Ratio Analysis
HORIZONTAL ANALYSIS
comparison across time
Comparative Balance Sheets
Comparative Income Statements
The
27.09% decrease
in
receivables
is
favorable
as the business shows effectivity in collecting credit sales from customers.
Much of the company's increase in current assets is from the
797.88% increase
in its
derivative assets
-
assets that derive their values from the values of other assets
.

The company's derivative assets are more on
hedging
to
reduce
the
risk
of adverse
price movements
in an asset.

The
increase
in company’s
derivative assets
is
favorable
, because it allows the company to
manage the currency and commodity price risks
arising from its operations.
The company's
available-for-sale financial assets
is
decreased
by
46.05%
.
There is a substantial
increase
on the company's
financing
side. The most notable ones being
short-term loans
amounting to₱
P1,640,550 billion thousand
, an increase of
22.53%
from the previous year.
The company didn't issue new shares from year 2012 to 2013.
There is a
decrease
of
37.33%
in the company's
retained earnings
from year 2012 to 2013 as the company's board of directors
declared cash dividends
.
Total assets
decreased by
2.79%
.

Total liabilities
increased by
4.98%
.
Total equity
decreased by
27.34%
.

Total liabilities & equity
decreased by
2.79%
.
There is a
126.82% increase
in the company's
dividend income
from
Penpro, Inc.
- an investment in shares of stocks that represents the company's
40% equity ownership
of Penpro, Inc.
There is a
slight increase
in the company's
net income
by
3.75%
.
VERTICAL ANALYSIS
comparison from base amount
Common-size Comparative Balance Sheets
Common-size Comparative Income Statements
1
2
3
1
2
3
Liquidity & Efficiency
Solvency
Profitability
Current Ratio
Acid-Test (Quick) Ratio
Total Asset Turnover
Working Capital
= Current Assets – Current Liabilities

2013 2012
= 22,763,398 – 32,394,738 = 23,832,333 - 30,515,330
=
P
(9,631,340)
thousand
=
P
(6,682,997)
thousand


Current Ratio
= Current Assets / Current Liabilities


2013 2012
= 22,763,398 / 32,394,738 = 23,832,333 / 30,515,330
=
0.70
=
0.78

The current ratio is a
liquidity
and
efficiency
ratio that measures a firm's ability to pay off its short-term liabilities with its current assets.
The current ratio of
0.70
is lower than the industry norms which is at least 1.
NPI is less likely to pay its short-term obligations.
Acid-Test Ratio
= Cash + Short-term investments + Receivables + Derivative assets
Current liabilities


2013 2012
= 507,619 + 0 + 6,735,382 + 43,0957 = 593,724 + 0 + 9,238,141 + 47,997
32,394,738 30,515,330
=
0.22
=
0.32


The quick ratio or acid test ratio is a
liquidity
ratio that measures the ability of a company to pay its current liabilities when they come due with only quick assets.
The acid-test ratio of
0.22
is way below the guideline of 1:1.
NPI is less likely to pay its short-term obligations.
The company having large portions of
inventories
by
34.80%
and
receivables
by
16.24%
of its current assets also tells us that the company has a weak ability to pay its current liabilities.

Total Asset Turnover
= Net Sales
Average Total Assets


2013 2012
= 105,968,525 = 103,926,088
(41,463,096 + 42,655,038) / 2 (41,463,096 + 42,655,038) / 2
=
2.52
=
2.47


The asset turnover ratio is an
efficiency
ratio that measures a company's ability to generate sales from its assets by comparing net sales with average total assets.
In 2013, the company has
2.52
ratio. This means that for each
P1.00
of assets, P2.52 of net sales is produced. This has improved by
0.05
from last year’s.
Debt Ratio
Equity Ratio
Debt-to-Equity Ratio
Times Interest Earned
Debt Ratio
= Total Liabilities / Total Assets


2013 2012

= 34,003,851 = 32,389,651
41,463,096 42,655,038
=
82%
=
76%

82% of the company’s assets is contributed by its creditors.

Equity Ratio
= Total Equity / Total Assets


2013 2012



= 7,459,245

= 10,265,387


41,463,096

42,655,038


=
18%


=
24%

Only 18% of the company’s assets is contributed by its owners.
Debt-to-Equity Ratio
= Total Liabilities / Total Equity


2013 2012
= 34,003,851

= 32,389,651
7,459,245

10,265,387
=
4.56


=
3.16

A higher debt to equity ratio indicates that more creditor financing (bank loans) is used than investor financing (shareholders).
The company has less opportunity to expand through use of debt financing. For every
P1
contributed by owners, creditors have loaned
P4.56.
The company has a
risky capital structure
.
TIE
= Net Income + Interest Exp. + Income Tax Exp.
Interest expense

2013 2012
= 17,883,521 = 17,772,277
373,088 248,715
=
47.93
=
71.46

The times interest earned ratio is a coverage ratio that measures the proportionate amount of income that can be used to cover interest expenses in the future.
NPI’s income is
48 times
greater than its annual interest expense. In other words, NPI can afford to pay additional interest expenses. In this respect, NPI's business is less risky and the bank shouldn't have a problem accepting their loan.
Profit Margin
Gross Margin Ratio
Return on Total Assets
Profit Margin
= Net Income / Net Sales


2013 2012
= 13,046,585 = 12,575,608
105,968,525 103,926,088
=
0.12 or 12%
=
0.12 or 12%

The Profit Margin ratio measures the amount of net income earned with each peso of sales generated and shows what percentage of sales are left over after all expenses are paid by the business.
NPI only converted 12% of their sales into profit.
Gross Margin Ratio
= Net Sales – Cost of Goods Sold
Net Sales

2013 2012
= 105,968,525 – 66,691,690 = 103,926,088 – 64,952,855


105,968,525

103,926,088
=
0.37 or 37%


=
0.37 or 37%

Gross margin ratio is a
profitability ratio
that compares the gross margin of a business to the net sales. This ratio measures how profitable a company sells its inventory or merchandise.
After NPI pays off his inventory costs, the company still has 37% of his sales revenue to cover his operating costs.
Return on Total Assets
= Net Income
Average Total Assets


2013 2012

= 13,046,585 = 12,575,608
(41,463,096 + 42,655,038) / 2 (41,463,096 + 42,655,038) / 2
=
0.31 or 31%
=
0.31 or 31%

The return on total assets, is a profitability ratio that measures the net income produced by total assets during a period by comparing net income to the average total assets.
NPI’s ratio of .31 means that in every 1 peso of asset, the company earns 31%.
The company has a
31%
return to all providers of capital including creditors and owners against its average total assets.
Conclusion & Recommendation
The company didn't grow much from year 2012 to 2013 with constant gross margin ratio & slight increases in sales. The company is an established entity in the industry despite having its operations financed by short-term debts. The company can still manage to cover its obligations through its operations.

An investor is recommended to buy NPI stocks, because the company has high earnings per share, but an investor is not expected to gain from drastic increases in the market price of NPI.
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