Event Stategy: Nestle UK - Case Study Example

Nestle - Case Study Company History  Nestle is a company which has a basic aim of building a worldwide business of nutrition and health. The company basically works in the area of sound human values and principles. The company was founded by Henri Nestle. Henri Nestle was a pharmacist by profession. Nestle as a business entity, started its operation in the year 1866 under the flagship of Henri Nestle. By the starting of 20th century, Nestle had been operating from United States, Britain, Germany and Spain. World War 1 created a great impact on Nestlé’s journey because World War I created a vast demand for dairy products and because of this reason the production of Nestle had been doubled. The year 1920 was very remarkable for Nestle because in this year the company ventured into a new arena by launching a new product – chocolate which has ranked second in terms of importance among all the nestle products. World War II also created a great impact on Nestlé’s journey because during this period Nestle launched a new product – Nescafe. During that period the production and sales of the company increased. The end of World War II indicated a beginning of dynamic phase for Nestle. The mergers that took place with Nestle during 1947 to 1974 were Maggi seasonings and soups (1947), Crosse & Blackwell (1960), Findus (1963), Libby’s (1971), and Stouffer’s (1973). Among all the mergers and acquisitions that Nestle has made during its journey, the most important was being the acquisition of American food giant Carnation. (Nestle) The starting of 21st century proved to be very crucial for Nestle because during this period Nestle has emerged as one of the market leader business entity in the nutrition and healthcare business sector. The brands that Nestle covers are Power Bar,Nido, Chocapic, Perrier, Purina, Nesquick, NaturNes, Maggi, Kit Kat. (Nestle) Nestle UK is a subsidiary of Nestle International. The company first made its benchmark in the year 1868, when the founder of the company set up a sales office in London. Nestle first started its factory in UK in the year 1901 and in the year 1905 it made merger with the Anglo-Swiss Condensed Milk Company. Nestle UK made its journey more remarkable by launching the famous brand of white chocolate milky bar in 1937.    Company Business Principles  The basic business principles of Nestle are same in all countries taking into account  local legislations, cultural and religious practices. The first business objective of Nestle is the manufacturing and marketing of Company’s Products in such a way that it should create a value which can be sustained over a long period of time and it should help the shareholders, employees, consumers and business partners. The second business objective gives stress on successful long- term development, not on short term profit. The third business objective put stress on behaviour, beliefs and actions of the company on which the consumers place their trust. It is an important belief in Nestle that legislation is the most effective measure of protection for responsible conduct. Nestle as a renowned business entity believes that success of a corporation solely depends on professionalism, conduct and the responsible attitude of its management and employees. (Nestle) Company’s Financial Aspects Finance is the most important area of concern of a business entity. “Profit” is the basic term upon which every business entity is working. Nestle has been a very financially stable company over a long periods of time. Nestle presented its 142nd annual report on 31st December, 2008. The sales have been gone up from 107552 to 109908during the period 2007 to 2008. That means, there has been a significant increase of 2356 millions (in CHF) in the total sales volume from 2007 to 2008. The net profit of the company for the year 2008 19051 millions. It was 11382 millions in the year 2007. Out of this net profit 1012 millions is attributable to minority interests and 18039 millions is attributable to shareholders. Nestle has a very commanding earning per share ratio in the year 2008 and the earning per share ratio for Nestle for the year 2008 is 4.87.The total current assets figures 33048 millions in the year 2008 and the exact estimate of current liabilities is 33223 millions in the year 2008. That means the current ratio (current assets/ current liabilities) of the company Nestle for the year 2008 is less than 1.The company’s share capital amounts to 383 millions but the company’s treasury shares and translation reserve give a figure of 9652 millions and 11103 millions respectively. The company has a very strong base of retained earnings and other reserves, which amounts to 71146 millions. Cash Flow Statement is an important financial tool to determine a business entities financial strength and stability. There are basically three segments of a cash flow statement, namely cash from operating activities, cash from investing activities and cash from financing activities. The exact figures of these three abovementioned segments for Nestle for the year 2008 are 10763 millions, 4699 millions, (16884) millions respectively. The cash from financing activities shows a negative estimate which is very alarming for a company like Nestle. The cash and cash equivalents at the beginning of the period was 6594 millions and the correct estimate of cash and cash equivalents at the end of the period is 5835 millions. There has been a considerable amount of decrease in the figures of cash and cash equivalents of the company Nestle for the year 2008 which is very alarming considering the present economic status. The total equity of the company Nestle for the year 2008 is 54916 millions. The consolidated financial statement is prepared according to the guidelines of the International Financial Reporting Standards (IFRS). It has been issued by the International Accounting Standards Board (IASB). The interpretations have been issued by the International Financial Interpretations Reporting Committee (IFRIC). (2008 Financial Statements, Nestle)   Recommendations  Though Nestle has been a big major player in the nutrition and health care businesses, there are some important areas where the company can improve because in today’s economic scenario where economic recession is going on, each and every company is struggling for its existence. There has been a stiff competition in the nutrition and health care business sector, the company like Nestle has to put its best effort to stay ahead in comparison to other companies. A company can improve if its product has a huge demand in the market. The demand supply ratio indicates the viability of a company’s acceptance in the market. Nestle has opened a research and development centre in West Africa to improve local agricultural crops. The main area of focus of this new research and development centre will be on improving the quality of raw materials. This has been a very major step because research and development should be the core area of focus for a company’s development. (Nestlé Research) A company can develop but the business of the company should be understood first, that means basic statistics should be understood properly, the products, suppliers and customers should be well known, the business processes should be well known and the overall equipment effectiveness should be properly known. There are certain areas on the basis of which a business can improve, like benchmarking of activities, reduction of process variability, elimination of non-value added activities, reduction of equipment related losses, proper stress on team work and integration with customers and suppliers. The communication network should be properly established and feedback system should be implemented to establish innovative, safety – oriented and productive mine site cultures. The maintenance performance should be compared with industry peers to develop company standards aimed at best practices. The issues relating to team building and skills development should be understood properly. As far as the financial stability is concerned, Nestle has been one of the top players amongst all the companies particularly dealing in this nutrition and health care sector. But the annual report of Nestle for the year 2008 shows some adverse results which may be alarming in the near future. The exact figure of cash and cash equivalent for the year 2007 was 6594 millions but it has gone down to 5835 millions for the year 2008.So, cash and cash equivalents balance should be increased considerably to avoid financial hazards and to maintain financial stability. Trade and other receivables of the company Nestle have been gone down by 1448 millions from 2007 to 2008. This may create a great financial hazard in the near future. Proper steps should be taken to avoid this financial hazard. Collection procedures should be properly implemented so that the amount of trade and other receivables will go up in the near future. Employee benefit assets have gone down in a great manner in 2008 compared to 2007. The exact estimate of employee benefit assets was 1513 millions in the year 2007 and it is 60 millions in the year 2008. Employee benefit should be one of the major concerns for a company. (2008 Financial Statements, Nestle) Employee benefit assets should be increased in the following manner: introduction of paid vacations, introduction of employee health insurance plan, introduction of paid sick leave, introduction of disability insurance, introduction of education reimbursement for job, introduction of pension plan and introduction of life insurance. Normally translation reserve arises while consolidating the foreign entities with the Holding company. The relationship between the holding company and the subsidiary companies should be improved so that the amount of translation reserve will show a very commanding figure in the near future. (Zahorsky) The current ratio (current assets/ current liabilities) for the company Nestle is less than 1. The proper current ratio should be 2 for any company. So, it is less than the proposed benchmark which is very alarming for any company. The current ratio measures the short term solvency of a company. Paying off certain current liabilities is one of the major courses of action to improve the current ratio. Long term borrowing to repay short term debt is also one of the courses of action to improve the current ratio. (Current Ratio) Conversion of fixed assets to cash and selling of unused equipment can improve the current ratio. Increase of current assets with new equity investments can improve the current ratio. The current ratio may be improved by taking few owner withdrawals and reinvesting profits back into the business. The current ratio may also be improved by increasing the cash balance with a long term loan. (Current ratio and working capital) Conversion of marketable securities into cash, payment of accounts payables with cash, purchase of inventory with cash, selling of inventory – these are the measures which can be taken into consideration for improvement of current ratio. Segmental information is also an important measure to determine a company’s growth structure. According to segmental information of Nestle, zone America is at the top position in terms of sales and zone Asia, Oceania and Africa is at the lower position in terms of sales. (2008 Financial Statements, Nestle) The sale of a company for a particular zone may be in lower side because of the following reasons: Industry knowledge is not up-to-date, Market strategy is poor, and the company cannot be able to establish goals. Capitalization is not adequate. Therefore, to increase the sale of a company for a particular zone, planning  should be done properly, knowledge of the industry is required, understanding of the customer is necessary, keeping good financial records is required, cash should be managed properly, using of sound management practices is required, development of a distinctive image is required. (Nelson) As now the economic recession is going on, the company like Nestle should take proper measures to avoid financial hazards and to stay ahead from other companies who are dealing with the nutrition and healthcare business. The economic recession occurred due to many reasons. The major factors for economic recession are as follows: large companies are giving depressing profit figures, borrowers have started defaulting, the prices of essential commodities have gone up, the companies are not recruiting, the prices of stocks has come down drastically but nobody is willing to buy them, the GDP of a country is going down, the savings of people are used for day-to-day expenses. (‘Why is our economy in a recession? 10 Causes of Economic Recession’) The market should be restructured to prevent the economic recession. Governing bodies and the regulators should take proper measures on the purchasing power of the common public. The governing bodies should invest in the customers than investing in the producers or suppliers to prevent economic recession. Nestle being the biggest food group also reported a slowdown in core sales growth during the first quarter of the year but it is still expecting a growth of 5 percent during the next part of the year. Nestle has a long term growth target of 5-6 percent. Nestle is in a well position to prevent the effects of economic crisis because of its wide range of products and wide geographical presence.  (‘Nestle sales growth slows but co sticks to forecast’) Works cited 1. “Current Ratio”, Business Owner’s Tool Kit, retrieved on May 7, 2009 from: http://www.toolkit.com/small_business_guide/sbg.aspx?nid=P06_7135 2. Current ratio and working capital, retrieved on May 7, 2009 from: http://www.imaginecorp.com/current_ratio.htm 3. Nelson, Bob, 12 Sure-Fire Steps to Improve Your Retail Sales, retrieved on May 7, 2009 from: http://www.businessknowhow.com/marketing/improve-sales.htm 4. Nestle, History, retrieved on May 7, 2009 from: http://www.nestle.com/AllAbout/History/HistoryList.htm 5. Nestle, Brands, retrieved on May 7, 2009 from: http://www.nestle.com/Brands/BrandHome.htm 6. Nestle, Business Principles, retrieved on May 7, 2009 from: http://www.nestle.com/AllAbout/Governance/BusinessPrinciples/BusinessPrinciples.htm 7. 2008 Financial Statements, Nestle, 2009, retrieved on May 7, 2009 from: http://www.nestle.com/Resource.axd?Id=CBFBD75A-AD9C-4D83-B844-1533E2831F84 8. Nestlé Research, Nestle, retrieved on May 7, 2009 from: http://www.nestle.com/NestleResearch/NestleResearchHome.htm 9. ‘Nestle sales growth slows but co sticks to forecast’, Business, The Khaleej Times, 2009, retrieved on May 7, 2009 from: http://www.khaleejtimes.com/biz/inside.asp?xfile=/data/internationalbusiness/2009/April/internationalbusiness_April97.xml§ion=internationalbusiness 10. ‘Why is our economy in a recession? 10 Causes of Economic Recession’, 2008, retrieved on May 7, 2009 from: http://www.morebusiness.com/10-signs-recession 11. Zahorsky, Darrell, “8 Uncommon Employee Benefits Your Staff Will Love”, retrieved on May 7, 2009 from: http://sbinformation.about.com/cs/benefits/a/8uncommon.htm. Read More