Finance & Strategy

Nottingham University Business SchoolMBA Programme

Accounting and FinanceN14M01

Nestle Malaysia BhdAn Assessment of Financial Performance, Sustainability and Strategy

Sirsanath, BANERJEE, ID : 014803Alwyn Chee Hua, KOAY, ID : 015855Shen Yang, KUAH, ID : 016302Ling Kim, LEE, ID : 015871Shing Loo, LIM, ID : 016301

(Word count 4223)COPY 1

Nottingham University Business SchoolMBA Programme

Accounting and FinanceN14M01

Nestle Malaysia BhdAn Assessment of Financial Performance, Sustainability and Strategy

Sirsanath, BANERJEE, ID : 014803Alwyn Chee Hua, KOAY, ID : 015855Shen Yang, KUAH, ID : 016302Ling Kim, LEE, ID : 015871Shing Loo, LIM, ID : 016301

(Word count 4223) COPY 2

Executive SummaryThis report serves to outline our review and findings of the companys financial position and performance, strategic and sustainability initiatives within the packaged foods of the F&B industry within Malaysia, in order to provide recommendation for future improvements.The main findings of the review are as follows:

Overview:Volatile global economy since 2008 has given rise to unstable growth in industries worldwide, nonetheless, Malaysia and the F&B industry are generally resilient towards this volatility, and the general outlook for future performance is on a moderately positive direction.Our SWOT analysis indicates multiple strengths and concurrent opportunities and threats to be addressed, while the Porters 5 Forces Analysis has shown that the industry outlook is generally favourable towards our company, largely due to our strong brand name and position.

Key Financial Ratio Analysis: Overall, the financial ratios fall within an average industry performance, however, more attention should be directed towards the liquidity position which could potentially affect the overall performance in the near term. Generally operating efficiencies and return on equities are well-managed for maximising shareholders value.

Corporate Governance:Corporate governance is well addressed within the company although more efforts towards transparency in terms of figure justifications in the company financial statements should be strictly adhered to boost shareholders confidence.

Sustainability:We have pioneered the Malaysian F&B manufacturing industry in terms of implementing GRI reporting practices, while actively integrating CSR activities into our value chain. This has significantly added value to our business performance in terms of operational efficiencies and added brand equity. Moving forward, we have highlighted the recommendations for future improvements which are outlined at the end of the report.

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ContentsList of Figures2List of Tables2List of Abbreviations31)Introduction42)Environmental Overview42.1) Global and Malaysian Economy Outlook42.2) The Industry Outlook53)Companys Information53.1) Companys Background53.2) Product and Service Offerings and Segmental Analysis63.3) Industry Analysis73.4) SWOT Analysis93.5) Future Prospects104)Quantitative Analysis (Financial Ratios)114.1) Profitability Ratio114.2) Activity Ratio134.3) Liquidity Ratio154.4) Leverage Ratio174.5) Checklist of Ratio184.6) Trend Analysis194.7) Common Size Analysis195)Qualitative Analysis205.1) Integrated Reporting Creating Shared Value205.1)Corporate Governance225.2)Earnings Management225.3) Sustainability236)Conclusion and Recommendations247)Reference26

List of FiguresFigure 1 Nestl Operative Functions5Figure 2 Nestl Sales by Product6Figure 3 Nestl Channel Sales7Figure 4 Porters 5-Forces for Nestl7Figure 5 Return on Equity Ratio11Figure 6 Gross Operating Margin12Figure 7 Profit Margin Ratio12Figure 8 Average Collection Period13Figure 9 Average Age of Payables14Figure 10 Average Number of Days in Stock14Figure 11 Total Assets Ratio15Figure 12 Current Ratio15Figure 13 Cash Ratio16Figure 14 Debt to Equity Ratio17Figure 15 Index Number of Nestl19Figure 16 Nestl's Governance of CSV, Sustainability and Compliance20Figure 17 Development of CSV Strategy Globally and How it Rolled out in Malaysia20Figure 18 Nestl Creating Shared Value Concept Components21Figure 19 Nestl's Shared Value21Figure 20 Nestl's Sustainability Indicator23

List of TablesTable 1 SWOT Analysis9Table 2 Table of Checklist18Table 3 Sustainability Activities Undertaken by Nestl from 2009 to dateError! Bookmark not defined.

List of Abbreviations

AbbreviationComplete Term

A&PAdvertising and Promotional

ACCAAssociation of Charted Certified Accountants

BODBoard of Directors

CSRCorporate Social Responsibility

DLDutch Lady Milk Industries Berhad

F&BFood and Beverage

F&NFraser & Neave Holdings Berhad

FMCGFast Moving Consumer Goods

GBPGreat Britain Pound

GRIGlobal Reporting Initiatives

GSTGoods & Services Tax

IFRSInternational Financial Reporting Standards

KLSEKuala Lumpur Stock Exchange

MCCGMalaysian Code of Governance

MDManaging Director

Nestle / Our CompanyNestle Malaysia Berhad

SGD Singapore Dollars

THBThailand Baht

USDU.S. Dollars

IntroductionThe Malaysian economy has been in a volatile position since the 2008 sub-prime recession. Coupled with increasing costs of living but stagnant disposable income, this has led consumers trending towards cheaper alternative goods in the market. The BOD of Nestl is concerned with the situation and has requested a strategic and financial assessment of the Companys performance over a 5 year period, benchmarked against two major competitors.

Nestl is a leading F&B Company in Malaysia with 75% of sales derived from the Beverage and Dairy segments. As such, two other major players in the market, F&N and DL, who operate in similar segments, are selected for benchmarking purposes.

This report initiates with an overview of the global economy and events, subsequently covering background and situational analysis via SWOT and Porters Five Forces Analysis. Further, the quantitative (financial ratios) and qualitative (corporate governance and sustainability) would also be discussed. The report shall end with an overall conclusion on our performance and recommendations for improvement. Environmental Overview2.1) Global and Malaysian Economy OutlookThe World Bank (2014) forecasted that the 2014 global economy is expected to be bumpy, while anticipating stagnant growth in developing countries. Notwithstanding the above, the Malaysian economy is expected to be experience positive growth with an improved business environment (World Bank, 2014).

The global economic outlook exerts influence in the local food production scene most notably via the increasing commodity prices, directly affecting raw material costs of production. Current significant event being the Ebola outbreak in the Africas, a cocoa producing continent, where cocoa powder and related commodity product prices are increasing due to the restricted accessibilities to the locations of produce.

The instable global economy and events are risks for us as we import several raw materials from other countries. Hence, consistent awareness towards our surroundings given the exposure to different economic conditions is much needed to sustain good business performance.

2.2) The Industry OutlookThe Economic Report of Malaysia (2014), outlines favorable growth in the F&B industry for the years 2014 and 2015. A further nascent trend observed includes the ever-changing demographic profiles leading to increased consumption on consumer segments; the role of technology and online shopping; and significant focus on inclusive development for the community and environment.

However, Malaysian governments GST implementation on 1 April 2015 may pose a negative factor for consumer sentiments, and this may impact revenues and profit prospects of the company in the coming financial years 2014-2015. It will be a pivotal year ahead to ensure that Real Internal Growth is maintained amidst heavy capital expenditure incurrence, coupled with possibilities of a slowdown in consumer spending. Nonetheless, Choong (2014) has advised that the F&B industry could claim an input tax refund based on the final GST paid. Companys Information3.1) Companys BackgroundNestl Malaysia Berhad has its roots in Malaysia for more than a century, starting out as the Anglo- Swiss Condensed Milk company producing sweetened condensed milk since 1912. Listed in KLSE since 1983 with a market capitalization of RM 16 billion, it has evolved into a major player in the Malaysian F&B industry with turnover of RM4.8 billion in year 2013 and 300 products commanding almost 50% of the processed food market share. (The Malaysian Insider, 2014).

Up to 95% of products are manufactured locally, with 7 manufacturing bases nationwide spread across Peninsular and East Malaysia; and a National Distribution Center. Equipped with a 5,800 people-strong workforce, the size and scale of our dominance in the Malaysian processed food segment is greatly reflected. Further, we append the Companys operative functions as follows:-

Figure 1 Nestl Operative FunctionsUnder the purview of the Zone Asia Oceania and Africa (Zone AOA) segment within Nestl Globals management structure, we have reasonable control and autonomy to suit and adapt business operations to the local and regional needs, while aligned closely to our global Swiss parent Nestl SA.Our mission is to be a leader in Nutrition, Health and Wellness, and to be the industry reference for financial performance (Nestl Global, 2014). With this, we are proud to report that our growth stays consistent with our global mission, whereby financial performance is on an improving trend over the past five years.

3.2) Product and Service Offerings and Segmental AnalysisNestl Malaysias businesses span across product categories of the F&B umbrella with the Beverage and Dairy segment being the major contributor followed by Foods. A recent sales segregation by product categories is appended in the next chart.

Source: Nestl Malaysia Analyst Briefing 11 Nov 2013 s.9Figure 2 Nestl Sales by Product

From a geographical perspective, a quarter of Nestl Malaysias revenues are from export sales to its counterparts in the region (Fig. 3), largely due to increasing Halal products demand. Today, Nestl Malaysia is the biggest Halal producer amongst the Nestl world and prides being the Halal Center of Excellence for the Nestl Group.

Figure 3 Nestl Channel Sales

3.3) Industry AnalysisIn Malaysia, the food processing sector is largely fragmented with small and medium enterprises representing more than 80% of the total number of establishments throughout various product categories (Market Watch, 2012). Nestl Malaysias industry analysis based on the Porters 5-forces is as follows:-

Figure 4 Porters 5-Forces for NestlThe outlook seems to be in our favour albeit having a fragmented industry with strong existing substitutes and relatively high supplier concentration. The threats of potential entrants are relatively deterred due to unrealistic production economies of scale being either unfeasibly small or expensively large; in terms of capital outlays for a production setup and effective distribution force.

Nonetheless, substitute threat is significant over the long term due to price sensitivity being prevalent in this sector, as this is attributed to an effect of a commoditization risk where dominant Nestl products are subject to me-too lower priced house brands, resulting in our market share erosion in the long run.

Despite these real challenges, we remain resilient due to the strong brand value and effective distribution network which are vital factors for this industry.

3.4) SWOT Analysis

Table 1 SWOT Analysis3.5) Future ProspectsFrom a corporate perspective, our new MD, Mr Alois Hofbauer (appointed 1 Jan 2013) spearheads the company towards a good start with the execution of CAPEX commitments in strengthening manufacturing capabilities within the liquid drinks and confectionery sector, we are confident in his lead towards sustainable growth in the right directions.

Continuously strong and efficient A&P activities is key to ensure consumer top of mind reflected through recent A&P executions such as the Nestl More Goodness, More Value campaigns which stresses on enhanced value (The Malaysian Insider, 2014). Simultaneously, prudent operations management for cost efficiencies, in line with sustainability efforts are also vital in adding value to the product life cycle. This shall facilitate in maintaining healthy growth and to mitigate possibilities of slowdown in sales.

It is also vital to address alternative channel distribution strategies as increased dependence on Key Account customers such as Giant, Tesco, Jusco, and Carrefour will lead to a proliferation of loss leader pricing. This will only erode Nestls brand equity and poses a huge risk in safeguarding the strong leadership positions amongst brands such as MILO, NESCAFE and MAGGI. (Bouckley, 2012)

Quantitative Analysis (Financial Ratios)

As part of our assessment of the Companys performance, our financial ratios are computed and benchmarked against our competitors. A detailed computation is available in the Appendices.

4.1) Profitability Ratio

Figure 5 Return on Equity Ratio

Overall, our ROE value is increasing at a steady manner within the 0.6 - 0.7 range over a period of five years, mainly attributable to the simultaneous increase in sales and equity. Although DL appears to have a better ROE ratio compared to us in 2013, their retained earnings in equity is in fact on a decreasing trend and this may indicate a negative growth on their part.

It was noted that F&N experienced a substantial drop in their ROE from 2011 onwards mainly due to a drop of net income from 2011 to 2013. Losing the distribution rights of Coca Cola have significantly impacted their income as it contributes 30% of the groups business (27 June 2011) (The Star, 2012). As mentioned in Malaysia Corporate Digest (2013). Notwithstanding, plummeting sales during years 2012 and 2013 were also due to the inventory loss as a result from the Thailand floods and relocation of a new plant in Pulau Indah, Klang (October 2011).

Figure 6 Gross Operating Margin

Based on the above gross profit margin, it appears that our Company is in a better position compared to F&N and DL. However, all three companies noted increases in operating expenses, mainly attributed to price hikes in several commodities such as milk solids and cocoa powder (BorneoPost Online, 2011).

Kennedy (2014) reports that the price of cocoa beans are expected to increase continuously due to recent external threats such as the Ebola epidemic in the Africas, a main supplier for cocoa. This is not favourable as cocoa is our main raw material for several products.

Figure 7 Profit Margin Ratio

In addition, an increasing trend in our profit margin can also be observed despite having higher expenses. Based on the 2013 Annual Report, our exports have decreased over the past year; while concurrently incurring higher marketing expenses to boost domestic demand to make up for the export decreases. In doing so, we have also launch several new products (e.g. Greek Yogurt) to the Malaysian market during the period.

Nonetheless, the expenses mentioned above prove to be worthwhile investments as higher net profit was reflected.

In short, relative to our competitors, our profitability ratios indicate that our performance are on a positive note.

4.2) Activity Ratio

Figure 8 Average Collection Period

Figure 9 Average Age of PayablesAs observed from the above figures, our company enjoys a payable period of over 3 months whereas the sum of collection period from our debtors is slightly over 1 month. Based on the result, it indicates that our trade debtors have been paying their debts at a timely manner whereas our creditors have leveraged at our reputational brand name and hence, allowing us longer repayment terms (Elliot and Elliot, 2009).

While it may seem an advantage, it is advisable for the Company to monitor and shorten the payable period to ensure good supplier rapport is maintained.

Figure 10 Average Number of Days in StockOn average, our stock turnover falls between 2-3 months and has been reducing since 2012. On a positive note, this indicates that there are more demand for our products in the market and as such, the stock turnover became sooner. We expect the above trend to continue in the future from our active marketing and promotional activities.

Figure 11 Total Assets Ratio

Generally, our total assets ratio is consistent and this indicates the efficiency of assets in generating sales. However, in year 2013, we observe a slight decrease and DL has outperformed us, this is mainly attributable to our investment in additional capacity (i.e. factory) in Shah Alam to enhance production capacity, the factory commenced operation in May 2014 (The Edge, 2014). We expect total assets ratio to improve in the near future.

4.3) Liquidity Ratio

Figure 12 Current Ratio

Figure 13 Cash Ratio

Generally, our current and cash ratio is unfavourable compared to our competitors. The decrease is mainly due to a significant reduction in cash and bank balances as well as bank deposits. Our trade and non-trade payables to related companies constitute a huge portion of current liabilities (about 95%) and they are unsecured, interest free and repayable on demand. However, our liquidity continues to be constrained due to low current asset levels and weak cash positions. Our company witnessed several trade and non-trade payables to related parties during the current financial year (for eg. an increase from RM1m in 2012 to RM80m in 2013 payable to related companies).

Our receivables are partially secured either by bank guarantees or traded shares. As at the end of the reporting period, the total collateral assigned to the Group was RM51,887,000 (2012: RM62,866,000). (Nestle Annual Report, 2013)

A further discussion on the above is available in Appendix 37 under the Earnings Management section.

Moreover, our company has notable foreign exchange transactions and is exposed to currency risks essentially with the current volatile global economy. The rising inflation and weaker Ringgits could have an adverse impact on Nestl (The Star Online, 2014). It is advisable for us to improve our working capital position to avoid cash shortage during emergency situations.

4.4) Leverage Ratio

Figure 14 Debt to Equity Ratio

Our leverage ratio has decreased substantially over the five years. We have reduced our total borrowings by 76% in the year 2012 vide repayment of loans from a related company (Nestls Annual Report, 2012). Further, our Company shareholders equity has also increased, which is reflected in the retained earnings and reserves of the Company. This is a positive indication as we have more capital to invest in the research and development activities instead of financing it via third-party borrowings, which could lead to potential default risk and high interest payment.

We appear to be in a better position than F&N as the debt-equity ratio appears to be lower while the Company, despite being an established brand, continues to grow consistently. Moreover, we are also better than DL as although the latter is prudent in taking any borrowings, its equity is on a decreasing trend, which potentially indicates they are not maximising their shareholders value.

Generally, we are not a highly-leveraged company. However, awareness in this current economy trend would be advisable, essentially in the current economy situation which is highly volatile.

4.5) Comparison of Nestls performance vis--vis F&N and DL

NestlF&NDutch Lady

PROFITABILITY RATIO Return on Assets Ratio Return on Equity Ratio Profit Margin Ratio Gross Operating Margin

ACTIVITY RATIO Average Collection Period Average Number of days in stock Average Payable Period Total Assets Ratio

LIQUIDITY RATIO Current Ratio Quick Ratio Cash Ratio

LEVERAGE RATIO Interest Coverage Ratio Debt Equity Ratio

Score1/131/1311/13

Table 2 Comparison of Nestls performance vis--vis F&N and DL

The financial ratios indicate that our Companys performance is average and DLs performance is ahead of us. However, based on our analysis, our overall assets and income are larger than DL. Moreover, DLs equity has shown a reduction trend over the years, which actually indicates that they are in a more unfavourable position than us.

Nevertheless, we are should improve our cash management system as our liquidity ratio is relatively weak. Frank and Goyal (2008) has warned that poor cash management could negatively impact a Companys operational sustainability and growth potential. Further, should there be an event of financial distress, we may face difficulties in terms of cash and this could depreciate our shareholders confidence.

Given DLs smaller size and decreasing equity, it is arguable that our overall performance is in fact better than our competitors over the past 5 years and we have portrayed better utilization of our assets to generate sales as well as improving our shareholders wealth. 4.6) Trend Analysis

Figure 15 Index Number of Nestl

Based on the above, we recorded a steady growth of 5-7 % over a 5 years duration in all turnover, operating profit and net profit.

In terms of operating profit, the highest percentage change in growth was recorded on year 2011 (18.86%) and the growth percentage is in a decreasing trend up to 2013. According to the annual reports, the apparent reason was due to loss recorded in cash flow hedging. In addition, we are also exposed to foreign exchange risk, essentially in the process of sales and purchases with foreign countries. Based on the annual reports, the currencies which could lead to the above risks includes SGD, USD, GBP and THB.

However, according to Elliot and Elliot (2009), while trend analysis provides a quick summary on the financial statements performance, it omits inflation outcomes into consideration and thus, do not signify a Companys actual performance.

4.7) Common Size Analysis

Elliot and Elliot (2009) have explained that the main benefit of common size ratio is to facilitate the comparisons for companies of different sizes. We have conducted the above comparisons and it is available in the Appendices.

The analysis concludes that our Companys performance is average compared to our competitors. Similar to the financial ratios, it appears that DL is generally better at managing their expenses (e.g. Cost of Sales). However, as highlighted in the annual reports, our Company have been incurring higher marketing expenses to boost domestic sales and launch of new products. We expect improvement in expenses in the near future.

The common size Balance sheet has also shown that our Companys current liabilities comprise of the highest related party transactions, which may trigger shareholders scepticism as no clear justification is provided in the financial reports.Qualitative Analysis5.1) Integrated Reporting Creating Shared Value

Tan et al (2013) encouraged firms in Malaysia to commence with the Integrated Reporting practice as it is associated with several benefits including greater transparency and enhancing brand value. Generally, we are conscious on linking sustainability issues in the organizations overall strategy and have demonstrated and clearly illustrated adherence to the disclosures as set out in the Global Reporting Initiative G3 Sustainability reporting Disclosure guidelines in the recent 107-page Nestl in Society: Creating Shared Value and Meeting Our Commitments 2013 report (pages 64-101), a sample page is enclosed in the Appendix (Aghashahi et al, 2013 and Nestl, 2000).

Figure 16 Nestl's Governance of CSV, Sustainability and Compliance

Figure 17 Development of CSV Strategy Globally and How it Rolled out in Malaysia

Figure 16 and 17 illustrate how Nestls inclusion of Governance and Sustainability initiatives within their strategic executions of the company is being carried out. Generally, the Creating Shared Value concept resonates with the fundamental of businesses in creating shareholder value for business owners and the society and encompasses the following components:-

Figure 18 Nestl Creating Shared Value Concept Components

Furthermore, the Shared Value concept is also applied across our Value Chain of suppliers, manufacturers and consumers vide the product life cycle approach. It addresses the impact on the value chain without comprising growth, and creating win-win situations for the benefit of both Nestl and the society.

Source: Nestl CSR PresentationFigure 19 Nestl's Shared Value

Moving forward, we shall deliberate on the 2 qualitative aspects in relation to our financial performance through Corporate Governance and Sustainability.

Kolk (2006) commented that corporate transparency is significant as it represents a Companys accountability to its stakeholders. In addition to quantitative performance, accountability should also include corporate governance which assess a Companys independence and sustainability reporting that focuses on a Companys triple bottom line (i.e. economic, environmental and social) activities. (Schooley, Renner and Allen (2010) and Kolk (2006)).

5.1)Corporate GovernanceThe Institute of Chartered Accountants of England and Wales (2008) has defined corporate governance as a system controlled by a Company. It concerns with the relationship and responsibilities of the board, management, shareholders and other relevant stakeholders within a legal regulatory framework. Generally, Nestl has excellent corporate governance system evidenced by the structure and independence of the Board of Directors and its internal controls etc. The MCCG 2012 has been used to benchmark our Companys practice and is presented in Appendix 36.

Meanwhile, F&N and DLs corporate governance system has also fulfilled most of the recommendations as stated in MCCG. However, we appear to have a stronger Board of Directors and sub-committees (i.e. Audit Committee, Compensation Committee and Nomination Committee) compared to its competitors as the majority of its members consist of independent non-executive directors.

5.2)Earnings ManagementAlexander, Britton and Jorissen (2007) and Deechow and Skinner (2000) has commented that accounting standards such as the IFRS and the accounting method choices of a Company played a role in earnings management although they are not desirable as the adjusted figures will mislead the stakeholders with regards to the Companys actual economic performance. Walton and Aerts (2009) and Lev (2003) added that the main reasons for managers to manipulate their accounts includes:- (i) Personal Advantages; (ii) To attract perpetuation support of investors and suppliers; and (iii) Fulfilling contractual agreements.

Based on our financial statements, it is questionable whether transactions have been manipulated. A simple analysis of the above is available at Appendix 37.

Nevertheless, our Companys financial statements have been audited by KPMG Malaysia and the audited reports had been evaluated as Unqualified. It is therefore arguable that earnings management in our Company is deemed to be mild and falls within the acceptable range under IFRS and the relevant supporting documents were furnished to the auditors during the audit process. Mulford and Comiskey (2002) has commented that earnings management that are deemed to be conservative and acceptable are not necessarily harmful as it could be practiced to keep a Companys net income at a sustainable level.

5.3) SustainabilityGoodman and Redclift (1991) explained that sustainability is more than a new word for the environment, and the inter-relatedness between both environmental and developmental issues in the pursuit of sustainability. Elliott and Elliott (2009) added that due to increasing social pressure, companies nowadays are expected to act ethically, essentially in their relationships with stakeholders that have a legitimate interest. This is contrary to the conventional Friedmans approach which emphasize that companies should only be responsible on maximizing shareholders value (Elliott and Elliott, 2009).

In addition, we have quantified the aspects of sustainability indicators by using the Input Output Analysis concept of defining the costs of sustainability (Gray et al, 1993 and Nestl, 2013). A summary of our Companys sustainability indicators of is appended in Figure 20.

Figure 20 Nestl's Sustainability Indicator

Based on the 2013 Performance Indicators, Nestl has provided a detailed explanation on each indicator listed above and is enclosed in Appendix 40.

In short, our sustainability activities are among the paramount of the Companies in Malaysia and they adhere to the Integrated Reporting requirements. As such, this has brought upon several awards including the Malaysian ACCA sustainability award in 2011 and The Prime Ministers Hibiscus Award 2013 (Bernama Media, 2011 and Berita Micci, 2014). Conclusion and RecommendationsSubsequent to assessing our Companys performance from a quantitative and qualitative perspective, it is concluded that our performance is generally encouraging. The following recommendations are put forth for improvements:-(a)Raw MaterialsSince the occurrence of the Ebola epidemic, the price of cocoa from our main supplier in Africa has increased significantly. Other main raw material such as sugar and milk solids (due to drought in NZ) has also been observed.

Based on the above, our Purchasing Department may consider alternative suppliers which offer a lower price for similar quality raw materials. For instance, Listiyorini and Rusmana (2014) has reported that an alternative exporter for cocoa, Indonesia offers a lower global price for the said commodity (i.e. USD2,500 per tonne as opposed to global average price of USD3,000 per tonne Appendix 35).

(b)New Product DevelopmentWe would recommend to steer new product development activities in relation to observable market trends in the aging population growth coupled with increased discretionary income spending. Nutraceutical products are food products providing health and medical benefits, which includes prevention and possibly treatment of diseases is a segment which would augur well in this line.

(c)Expansion of Integrated Agricultural Support for Local FarmersTo expand current CSR projects into other potential local raw materials (eg. Incorporating local fruits into confectionery and beverages products). This is in order to capitalize on suppliers integration and improve operational efficiencies, while benefitting the society and community as a whole.

(d) Liquidity PositionFor the fiscal year 2013, the company reported current assets of MYR929.99mn, compared to current liabilities of MYR1071.86mn. Nestle also recorded receivables of MYR497.29mn. The company's current ratio was 0.87 at the end of fiscal year 2013, as compared to 0.90 in 2012. It also recorded increased quick ratio and cash ratio of 0.49 and 0.01 as compared to 0.46 and 0.03 respectively in 2012. A negative current ratio indicates that the company is in a weak financial position. The performance of the company depends largely on the cash reserves and its ability to generate cash from operations. Lack of sufficient cash or cash equivalents could hamper the operations of the company.

We must focus on optimizing our short term resources and reducing the working capital cycle without disturbing day-to-day operations of the business.

(e) TransparencyGenerally, our corporate governance and sustainability activities are good but we would encourage higher transparency in terms of the preparation of financial statements.

With the increasing awareness of transparency practices and the occurrence of many accounting frauds globally, investors have become more risk averse. Higher transparency in terms of proper justifications for transactions like related party loans and a more detailed report of its expenses would be encouraged.

(f)New Investment Big DataFinally we recommend considering investments in Big Data solutions. SAS has defined big data as the availability of structured and unstructured data to promote accurate analysis.

Goyal, Hancock and Hatami (2012) states that the above is expected to enhance immediate feedback from customers and suppliers. In the long run, it will also promote higher transparency, hence better performance management, cross-functional collaboration and talent management.

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