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Analysis of an international company Spring semester – Sexton 2014 Table of content Introduction This report Is part of the Sexton University of Applied Sciences course L. MIM 3238 Analysis of an international company. Lecturers Spittle and Dude Rendering gave us this assignment to analyze two beer breweries, Heinlein International and SAAB Miller. By analyzing these two breweries, we students get better view of how international companies manage to consolidate and strengthen its position in a complex and dynamic environment. In a first lecture, we students formed groups (Max. Members) which the report has to be done. The course is divided written report and oral exam, which consist all parts of the report and every group members should give answer questions what asked. In the report, we analyze these two breweries by financial and marketing part. In a financial part, we calculated different ratios for inventory, profitability etc. And marketing part consider market research of beer market and DEEPEST and SOOT analysis. Report Is made In a group of five (5) members and everyone has made different parts.
We divided this report that three (3) members do financial part and two (2) members do marketing part. Report starts with to calculating and analyzing Heinlein and SAAB Miller liquidity ratios. After that are represented financial leverage management ratios. Then we exemplify our research of beer market and compare Whininess strategies to SAAB Miller. Next, we give both breweries profitability and efficiency ratios. Afterward in the report has important player in Dutch markets. Last ratios that we analyze are investor ratios. We end this report with SOOT-analysis of Heinlein, and common conclusion of the whole report.
Liquidity ratios net working capital Heinlein Gabrielle 2012 (2,275) (2,405) 2013 2,508) (2,842) Working Capital is a financial metric, which represents operating liquidity available to a business, organization or other entity, including governmental entity. Net working capital of both corporations is negative during 2012-2013. It might provide deficit of working capital and low flexibility of company will come out. Corrective actions are necessary for both corporations to solve this problem. Otherwise they have a risk being unable to meet short-term obligations. Quick ratio (acid test ratio) Quick ratio measures the ability of a company to use its near cash or quick assets to extinguish or retire its current liabilities immediately. Quick assets include those current assets that presumably can be quickly converted to cash at close to their book values. A company with a Quick Ratio of less than 1 cannot currently fully pay back its current liabilities. As we can see, Whininess’s Quick ratio in 2012 was 0,504. In the next year it became 0. 497. It means that company can meet some difficulties in paying their debts (short term).
Also through analyzing the Balance Sheet, we figured out that one of the biggest percent of current assets was receivables (49%). It also an make the problem more complicated because they cannot pay by receivables at the same time when they have to pay their short-term debts. One of the Whininess’s competitors, Gabrielle, has the same problem. Their quick ratios are 0,497 in 2012 and 0,529 in year 2013. Through analyzing their Balance Sheet, we could figure out that their part of receivables is bigger (52%) which could be disadvantage comparing to Heinlein.
If we examine data from balance sheet, we can see the following We can observe the reason why the ratio of Gabrielle is better. They rapidly increase the level of current assets. In addition, Gabrielle tries not to increase the level of inventory, which is good solution, because practically inventory is not liquid enough to deal with short term obligations. Current ratio 0,709 0,669 0. 687 0,667 The current ratio is a financial ratio that measures whether or not a firm has enough resources to pay its debts over the next 12 months.
It compares a firm’s current assets to its current liabilities. The current ratio is an indication of a firm’s market liquidity and ability to meet creditor’s demands. Acceptable current ratios vary from industry to industry and are generally between 1. 5 and 3 for healthy businesses. If a company’s current ratio is in this range, then it generally indicates good short-term financial strength. As we can see, Heinlein in 2012 has 0,709. In 2013, it has become 0,687. The results after calculating the current ratio of the both corporations are not good enough.
Such low Data can be supported by a strong operating cash flow. Their competitors, Gabrielle has the same situation. It’s not liquid enough to cover their short term obligations. Cash ratio Cash ratio is calculated with a company’s total cash and cash equivalents to its current liabilities. A strong cash ratio is useful to creditors when deciding how much bet, if any, they would be willing to extend to the asking party. The cash ratio is generally a more conservative look at a company’s ability to cover its liabilities than many other liquidity ratios.
This is because inventory and accounts receivable are left out of the equation. There is no common norm for cash ratio, but in most countries cash or cash equivalents to cover only under 20% of their short term obligations, which is low index. SAAB-Miller had even worse situation in 2012. However, their cash and cash equivalent increased rapidly in 2013. In other words, Gabrielle was successful to overcome their bad situation. Bettors collection period 39 35 The term Debtor Collection Period indicates the average time taken to collect trade debts.
After analyzing Balance Sheet and Income Statement, we can realize that Whininess’s debtor collection period is higher, 39 days in 2012 and 46 days in 2013, than Submariner’s 35 days in 2012 and 34 in 2013. It means that Gabrielle obviously receive money from buyers faster than Heinlein, because of their more strong policies and procedures, which is big advantage in a competitive environment. Practically period equal or less than 60 days this is an indication of a healthy remover in the accounts receivables that is likely providing an equitable amount of cash flow. Equity ratios – calculations Base formula: (current assets-inventories)/current liabilities Heinlein 2012 = (5,537-1 Heinlein 2013 = (5,495-1 Associability = (4,851-1 Associability = (5,683-1 Base formula: current assets/current liabilities Heterogeneous = = Associability = Associability = cash ratio Base formula: cash or cash equivalents/current liabilities Heterogeneous= Heterogeneous= Associability Associability debtors collection opened on days) Base formula: average accounts receivable/annual credit sales(revenue)*365 Heterogeneous= Heterogeneous= Associability= Associability= Financial leverage management ratios debt ratio 0. 8 0. 33 0. 72 0. 32 Debt ratio of Heinlein is around 0. 72 and liability never exceeds than asset. It means Heinlein has stable financial status, but less leverage. In addition, SAAB Miller’s debt ratio of 2013 is less than 1, which means liability also never exceeded asset. It could be risky to owners but investor’s point of view, SAAB Miller is not capable of leverage. Interest coverage ratio 5. 3 12. 2 5. 34 8. 23 Both companies show Interest Coverage Ratio of higher than 1, which means with heir earning they can fully pay interest.
However, SAAB Miller shows higher ratio than Heinlein, if the ratio is equal or higher than 1, there is no big difference between two companies. It. Simply shows that SAAB Miller can have more capacity after interest payment. Earning per share 5. 12 2. 69 2. 37 3. 21 PEPS shows how much earnings can be made from each share. The PEPS higher, the SAAB Miller will be higher than that of Heinlein. Because of this reason, SAAB Miller can attracted investors more easily. Also there is more possibility of higher dividend of SAAB Miller. Therefore, investors would more likely buy the shares of SAAB Miller.
But investors cannot invest money only according to PEPS figure. Price/earnings ratio 9. 9 10. 07 20. 5 9. 4 Price/Earnings ratio shows how the market price is evaluated. If the PER is around 10-?12, it is properly evaluated. If it is higher than 10, like Heinlein, it is underestimated, and worth to buy it, because the market price will be higher soon. On the other hand, market price of SAAB Miller is overestimated and is going to be lower. As you can see above, PEPS of Heinlein is higher than that of SAAB Miller. However, you also need to check the below dividend yield to make better decision. Dividend yield 1. 76 0. 03 1. 83
Dividend yield shows how much can investors receive dividend. As we can see above table, dividend yield of Heinlein is 1. 83 and it means Heinlein has more possibility of receiving dividend. Also, it means investors who bought share of Heinlein would receive 1. 83 of dividend yield. Dividend cover 5. 75 2. 93 2. 66 3. 48 SAAB Miller has larger dividend coverage and owner is able to make flexible decisions. It means though earning of company decreases, company has capacity to choose other means to deal with it. On the other hand, if Heinlein has lower operation profit, there is less chance to increase or maintain same amount of dividend.
It will be less attractive to investors. Financial Leverage Management Ratio -Calculations Gabrielle 2013 = Base formula: Total Debt/Total Asset Heinlein 2012 = = 0. 68 Gabrielle 2012 = = 0. 33 coverage ratio Base formula: BIT/lintiest Charge Heinlein 2012 = 2,918/551 = 5. 3 Heinlein 2013 = = 0. 72 = 0. 32 interest Heinlein 2013 = 3,091/579 = 5. 34 Gabrielle Gabrielle 2013 = 5,758/770 = 8. 23 earning per share 2012 = 4,979/407 = 12. 2 Base formula: Earnings after Interest, Tax and preference dividend/Number of ordinary shares Heinlein 2012 = 2,949/576 = 5. 2 Heinlein 2013 = 1,364/575 – 2. 37 Gabrielle 2012 = = 2. 9 Gabrielle 2013 = 3. 511/1,093 = 3. 21 price/ earnings ratio Base formula: Current Market Price per Share/PEPS Heinlein 2012 = 50. 47/5. 12 = 9. 9 Heinlein 2013 = 48. 64/2. 37 = 20. 5 Gabrielle 2012=27. 11/2. 69 = 10. 07 Gabrielle 2013 = 30. 16/3. 21 = 9. 4 Base formula: Dividend per share/Current Market Price per Share Homesickness = 0. 89/50. 47 = 1 . 76 Heterogeneous = 0. 89/48. 64 = 1. 83 Associability = 0. 91/27. 11 = 0. 03 Associability= 1. 01130. 16 = 0. 03 Base formula: PEPS/Dividend per Share Heinlein 2012 = 5. 12/0. 9 = 5. 75 Heinlein 2013 = 2. 37/0. 89 = 2. 66 Gabrielle Gabrielle 2013 = 3. 511/1. 01 = 3. 8 2012 = 2. 668/0. 91 = 2. 93 According to Grin Holdings researches, today’s largest beer producers are China, USA and Brazil, and largest beer consumption countries per capita are Czech Republic, Austria and Germany. Three largest breweries in the world are Enhances-Busch Ellen (Belgium), SAAB Miller (South-Africa/UK) and Heinlein International (Netherlands). Enhances-Busch Ellen (ABA-Ellen is the biggest brewery in the world measured by turnover. In 2012 its turnover was 33,million euros.
It has history from 1366 but as it is known today, ABA-Ellen was founded in 2008 (after Enhances- Busch merge with Ellen). ABA-Ellen operates in 23 countries in six continents. It has more than 200 brands, and well-known brands are Stella Ratios, Budweiser and Beck’s. SAAB Miller was founded 1895 in South Africa and from that part it has continued its growth in beverage markets all over the world. Nowadays SAAB Miller is second largest brewery in the world, its turnover in 2013 was 25,16 million euros. SAAB Miller operates in 75 countries across Europe, Africa, Asia, North and South America, Australia.
It has more than 200 beer brands and latest new brand in SAAB Miller is Fosters when they hostile takeover Fosters brewery 2011. However, SAAB Millers stile takeover from Foster brewery did not included Fosters brand in UK and Europe, where Fosters is still owned by Heinlein. Most popular beer brands are Pipeline Require, Person’, Miller and Grossly. SAAB Millers headquarters locates in London. Heinlein International is third largest brewery in the world. In 2013 Heinlein International turnover was 19,203 million euros. Heinlein brewery was founded in 1864 in Netherlands and its headquarters locates in Amsterdam.
Heinlein Into. Operates all over the world in six continents, in 178 countries. It has over 250 beer brands and well-known brands are Heinlein, Strongbox and Sol. Beer market Beer has been existing as long as agriculture but in 19th century it became major an industry branch. In the Middle Ages monasteries were breweries. Selling beer to pilgrims was huge source of income to Monasteries. Time came by and local microbreweries started to exist. In the beginning of 1400 Dutch breweries put hop in beer, English people blamed Dutch that they ruin the beer taste. Nowadays hop is one of the main ingredient of beer.
Breweries have come long way from monasteries to globally working breweries. People globally drink more beer than any other alcoholic drinks. In 2009 global beer consumption was 185 billion liters when wine institution was less than 30 billion liters. Three Largest breweries in the world have almost 40 % market share of the beer market. They have grown in last decades because of merges and acquisitions, according to Camelopard & DГ¶rentГcheer book “The Global Brewery Industry’ (2013). Beer market has a lot of competition and it is hard to enter to market.
More microbreweries have started to exist. Microbreweries may locate for example in local pubs where they can brew and serve their own beer. If microbreweries are doing well, it is possible that one of the big breweries will make acquisitions with them. That is how global breweries have more market share in growing market areas such as Asia. Amount of merges and acquisitions 1997-2010 SAAB Miller has done 15 acquisitions for 10 billion euros and change in the beer market was when China and India opened its market to global beer breweries.
Nowadays China is one of the biggest beer producers in the world. Camelopard & DГ¶rentГcherished that, there is 3 different kind of beers: ale, lager and hybrid/mixed. Different taste exists but the main taste of the beer is stayed the almost the same through decades. Main thing what divided beer from the others, is its brand. How marketing and branding is done, and create innovations on beer market, is more effective than the taste. In addition, price based segmentation plays huge role in the beer market. Some breweries trust on their quality of the product when some try to make premium beers.
For example, Heinlein launched Desperado beer first time to Africa and South America and it seemed to be good market area for Desperado. In addition, Whininess’s new beer innovation called Reader launched to 19 countries and it enjoyed huge success. Lot of beer brands is taking part in global and local sport events and that is how they reinforce their brand. To get involved with sports events breweries reach their main segment: young males. In addition, those sports event are usually global, so beer brand reach lot of potential new customers at the same time.
Today 75 % of beer market sales come from off premise channels such as supermarkets and alcohol stores. This increased beer buying habit has created three important implications. First, breweries have to get their product to the retail stores. That means breweries must have great bargaining power to get the product to store. Secondly, retail outlets have huge role of beer brand success. Third en is packing of the beer must be prominent to affect consumers purchasing decisions. That is why smaller breweries beer brands do not exists in retail store and they are served only in pubs. Racket trends Trend of the beer market concentrated on markets in Asia, Africa and Latin America, especially in China where beer consumption has increased the most. All the breweries want some of the market share of the Asia. In 2012, both Heinlein and SAAB Miller had acquisitions in Asian market. On the other hand, beer consumption has decreased in Western Europe, but potential market in Europe is premium beers. In 2012 in the US markets turn to little growth 1,1 % first time in 4 years. In the future, breweries will increase their volume in emerging markets and in developed markets, they would concentrate on branding and pricing.
Prediction of the beer market shows huge growth of China and Indian markets. Balancing with the old and new business areas and money saving plans, breweries will ensure their cash flow. Top beer markets (Live Mint, 20. 2. 2014). On the Figure (Top beer markets) is represented that Asian and Latin American decrease. However, Germany stays one of the top beer consumption countries but argental growth comes down -1,7 %. Highest growth is estimated in India 13,2 % and China 5 %. Growth in India is expected by more beer drinking under 25 years old, lower taxes in beer and overall economic growth.
According to Report Linker, breweries concentrate on increasing their range of low alcohol beers. Today’s consumers are more aware of health issues and it is important that breweries can serve beer to them. With the low alcohol beer and new products like flower beer, fruit-infused beer and milk beer, breweries try to reach female segment. Reaching segment of female beer market will turn to growth internationally. Congenial market share brick-countries BRICK is abbreviation of Brazil, Russia, India and China. In global beer industry, BRICK- countries are growing faster than other regions.
In 2010, BRICK-countries set a new record of their own of highest market growth rate, producing almost 78,80 billion euros. China leads the group measuring by revenue but India leads in annual growth. Indian beer market is growing annually 2 % during 2006-2010. Beer has become popular in India and many microbreweries are taking market share from global breweries. Microbreweries great success in India is caused by high tax rates of imported beer brands. Although beer in India is not for everyone, India is the only BRICK-country where beer costs more than Big Mac hamburger.
In this region, SAAB Miller has more market share than Heinlein. Asia pacific Asia and Pacific countries have grown annually 5 % during 2006-2010. Standard lagers are leading markets and in 2012, 75 % of overall sale came from standard lagers. In years, 2010 – 201 5 is estimated that in Asia and Pacific decline and annual growth will be 4 %. In Asia Pacific region, Saab Miller has circa 5 % more market share than Heinlein. Go- nations France, I-J, Germany, Italy, Russia, USA, Canada, Japan are 68 countries. They present leading industrial countries.