Financial Analysis Kuantan Flour Mills Berhad.

BWFM 5013 CORPORATE FINANCE

Presenter : Besten Mohamed El Amine, 818357

Belhimer Messaoud, 816228Boukerika Abdelhak, 817803

Executive Summary

◉ This report provides an analysis and evaluation of the current and prospective profitability,

liquidity and financial stability of KFB.

◉ This report contains information and analysis of the company for last five years. 

◉ Methods of analysis include Liquidity ratio, Asset management ratio, Leverage

ratios,Profitability ratios and Market value ratios,

◉ The result of financial analysis ratios indicate a negative financial position of KFB,

◉ The recommendation suggested to looking for alternative suppliers, expand into new market

and increase inventory turnover,

Overview of the Industry The Malaysian domestic flour market demand was stable but competitions within the industry remain intense

during the financial year.

The KFMB faced a difficult and challenging in operation conditions during the financial year of 2014, due to its

medium size of operation, intense flour market competition, higher raw material cost and unfavorable foreign

exchange rate.

During the financial year (2014), the KFMB started implementing drastic efficiency measures to effectively

manage the cost structure and liquidity position. The way forward is to increase the production level and compete

for bigger market shares

Kuantan Flour Mills Berhad

Kuantan Flour Mills Berhad is engaged in flour milling and trading of its related

products. The Company was founded on May 12, 1984 and is based in Kuantan,

Malaysia. It is a public limited liability company, incorporated and domiciled in

Malaysia, KFMB is listed on the Bursa Malaysia Securities Berhad. It is the only Flour

Mills in East Coast Region. The firm operates through the following geographical

segments: Malaysia, Singapore, and Philippines. Its products include wheat flour, pre-

mix flour, dry yeast, and bread improver. In addition, it offers transportation and

technical services.

KFMB’s Vision & Goals

KFMB’s VisionThe KFBM's vision is to be a reputable and reliable company with continuous business growth in flour milling across the region.KFMB’s Goals KFMB aims to manufacture the highest quality of flour products and to provide services with exceptional values to its customers. KFM will also provide a pleasant, nurturing, and growth-oriented environment to encourage its employees to improve and to be highly productive.

Financial Review The Group incurred a lower loss position of RM 2.19 million during the financial year ended 31 March 2015

as compared to the previous financial year’s loss of RM 5.21 million. The lower loss recorded was mainly due

to improved operational efficiency, gain on disposal of assets, written back of liabilities no longer

required, forfeiture of deposits and waiver of directors’ fees. The Group achieved lower revenue of RM

41.66 million as compared to the previous financial year’s revenue of RM 48.81 million.

The sales volume and the average selling price of KFMB flour experienced decline in certain sectors of the

flour market due to stiff market competition that significantly affected our gross margin.

Prospects for The financial Year

As for the outlook of the industry, KFMB managers expect the demand for flour to remain good

but competitive. In the coming financial year, KFMB shall expect to transform KFMB into a lean

business vehicle enabled by effective and cost efficient measures with the objective to improve both the

sales and profit margins. The Group had embarked appropriate corporate exercise to generate some

funding. It will continue to do so to enhance its existence and presence.

In conclusion, they have made minor progress during the financial year ended 2015.

Barring any other unforeseen adverse economic circumstances and given better liquid resources, they are

in a very strong position to significantly improve their financial performance and position.

Ratios ( Liquidity ratios )

2011 2012 2013 2014 20150

0.2

0.4

0.6

0.8

1

1.2

0.89

1.07

0.85 0.85

0.40.5

0.63 0.66 0.68

0.21

Liquidity ratios Current Ratio Quick ratio

Ratios (Asset management ratio)

2011 2012 2013 2014 2015-10

01020304050607080

7.29 6.7315.36 17.02

3.49

51.26 55.16

66.4357.65

11.46

0.165 -0.056 0.014 -0.069 -0.439

Asset management ratioInventory turnover ratio Days sales outstanding Fixed assets turnover ratio

Ratios (Leverage ratios)

2011 2012 2013 2014 2015

-20

-15

-10

-5

0

5

10

0.51 0.12 0.46 0.45 0.94

6.56

-2.94

0.9-2.32

-15.21

Leverage ratiosDebt ratio Série 2

Ratios (Profitability ratios )

2011 2012 2013 2014 20150

1

2

3

4

5

6

4.3

2.5

3.5

4.5

2.4

4.4

1.8

2.8

2 2

3

5

Profitability ratios Net profit margin Série 2 Série 3

Ratios (Market value ratios)

2011 2012 2013 2014 2015

-1

-0.5

0

0.5

1

1.5

2

2.5

Market value ratiosShare price Price per earnings ratio Market/book ratio

PN17

PN17 stands for Practice Note 17/2005 and is issued by Bursa Malaysia; relating to companies that are in financial

distress. Companies that fall within the definition of PN17 will need to submit their proposal to the Approving

Authority to restructure and revive the company in order to maintain the listing status.

General criteria for a listed company to be classified as a PN17 company are as follows:

1- Shareholders’ fund is equal or less than 25% of the total issued and paid up capital of the listed company; or

2- Receivers and/or managers have been appointed to take control of at least 50% of the total assets emplyed

3- Winding up of a subsidiary or associate company which makes up at least 50% of the total assets emplyed

4- The listed company has suspended or ceased all or a major part of its operations.

PN17 stands for Practice Note 17/2005 and is issued by Bursa Malaysia; relating to companies that are in financial

distress. Companies that fall within the definition of PN17 will need to submit their proposal to the Approving

Authority to restructure and revive the company in order to maintain the listing status.

General criteria for a listed company to be classified as a PN17 company are as follows:

1- Shareholders’ fund is equal or less than 25% of the total issued and paid up capital of the listed company; or

2- Receivers and/or managers have been appointed to take control of at least 50% of the total assets emplyed

3- Winding up of a subsidiary or associate company which makes up at least 50% of the total assets emplyed

4- The listed company has suspended or ceased all or a major part of its operations.

Genearl factors leading to pn17 status

Four factors leading to KFMB pn17 status

With the same objective, Author conducted numerical experiments in determining the main factors that leading

to the company’s PN17 status such as (Ng Kim-Soon, 2013) and result has found that current ration, cash ratio,

quick ratio and Altman z score model 1968 determine the situation of the company whether is listed in NP17 or

not, the table below illustrate criteria of classification company.

From the ratios calculated we understood way KUANTAN FLOUR MILLS BERHAD is listed in PN 17

Expand into new market into new market to increase profitability Investigate alternative suppliers (account payable) to lower cost of stock. Investing in higher returning products. Target customers more effectively and focus more on their marketing and promotion activities to

increase their customers’ base. Focus more on the products, which have less market competition. The distribution expenses must be decreased and some of their product lines must be scrutinized for

improvement. Increasing inventory turnover by offering more promotion on products to customers.

Recommandations

Overall, the position of KFB is not good with increased liquidity problem management

of working capital, which may cause investors to go elsewhere if the profitability remain

decreasing, the group could face real cash flow problem in the future unless it starts

generating more revenue and runs more efficiently.

Conclusion

Thank You!