Tobacco Industry Analysis: Malaysia

This assignment delves into the Malaysian tobacco market. Students are tasked with analyzing the financial performance of leading companies such as British American and Kepong, examining their key performance indicators (KPIs) and profitability. The analysis extends to understanding consumer price index trends, cash flow per sale percentages, and future market projections based on historical data and scenario forecasting.

Business
Analysis Projects

Table of Contents
INTRODUCTION...........................................................................................................................1
1. COMPANY BACKGROUND....................................................................................................1
1.1 Key issues.........................................................................................................................1
1.2 Comparative Value Proposition.......................................................................................1
1.3 Rationale of choice of company.......................................................................................2
2. FINANCIAL ANALYSIS...........................................................................................................2
3. STRATEGIC ANALYSIS...........................................................................................................7
3.1 PESTLE analysis..............................................................................................................7
3.2 New forces in PBP Group Berhad....................................................................................9
3.3 Operations and analysis of organisation...........................................................................9
3.4 Success Factors.................................................................................................................9
4. IDENTIFYING STRATEGIES.................................................................................................11
4.1 Ansoff's Matrix...............................................................................................................11
5. LIMITATION OF FINANCIAL MODELS AND CONVENTIONAL ANALYSIS.....12
5.1 Limitation of Conventional analysis..............................................................................12
5.2 Limitation of financial model while analysing the performance....................................12
RECOMMENDATION.................................................................................................................12
CONCLUSION..............................................................................................................................13
Modelling.............................................................................................................................13
REFERENCES..............................................................................................................................15
APPENDIX....................................................................................................................................16

Index of Figures
Figure 1 Return on invested capital.................................................................................................3
Figure 2 Net profit margin...............................................................................................................4
Figure 3 return on assets ratio..........................................................................................................5
Figure 4 Current ratio......................................................................................................................6
Figure 5 Quick ratio.........................................................................................................................6
Figure 6 Malaysia consumer price index.........................................................................................8
Figure 7 Product market Ansoff Matrix........................................................................................11

INTRODUCTION
Business is a place where products or commodities are buy or sell in the market. This
study will present the competitive position of PBP Group Berhad which is a public listed
company. The present report analysis the purpose and key issues in a business. It also explain the
financial analysis by making comparison with its competitors. There are various strategies such
as PESTLE, analysis of business environment, competitive forces and porter's five forces are
explained in this report. Furthermore, it also identify the Ansoff strategies which is best for the
company's growth. At last, all the limitations of conventional analysis and modelling are
presented in the report.
1. COMPANY BACKGROUND
PBP Group Berhad is public listed company which operates its work in food production,
agriculture, waste management, film distribution, property investment and development fields.
Robert Kuok is the founder of a company which was founded in 1968. Its headquarter was
situated in UBN Tower, Kuala Lumpur, Malaysia. Company mainly provides food, consumer
goods and packaged goods in the market. It also offers retail real estate, waste management and
cinema operation services across the world.
1.1 Key issues
The key issue of discussion is the competitive position of PBP Group Berhad by making
comparison with its benchmark companies. Cited firm faces the competition from their
competitors which provides substitute products in local and international market. Firm face the
competition with Aim food manufacture, HEXA Food Company and perfect food manufacturer
in the market. By taking this competition, cited firm continuously adopt new strategies so that it
would enable for its position by offering high value.
1.2 Comparative Value Proposition
British American
Tobacco Malaysia Bhd
HEXA Food Company Kepong BHD
Target Customer Taste and preference
of customers
High premium
consumer
Convenient and speed
important customers
Benefits Well structure set-up Healthy environment Easy design and good
1

and quality quality
Price 12% premium 20% premium 13% premium
Customer Value Local taste of food in a
low price
High quality with
normal price
Average quality of
food in affordable
price
1.3 Rationale of choice of company
The main objective of selecting PBP Group Berhad, is to analysis the products which
offers by the company with high quality and lower price to the customers. The market of cited
firm has been increases for over 10 year which is easy to analysis the market trend and
competitive position of this organisation (Staake, Thiesse and Fleisch, 2012).
2. FINANCIAL ANALYSIS
Ratio analysis is in general the comparison of one number to another, that is, it is the
comparison of one amount to another. It is done by a company's management to find out the
strength and weakness of the company after the preparation of the income statement. The ratio
analysis is an important management tool to find out the effective and efficient financial success
of the business. Ratio makes the interpretation of financial statements easier and on the other
hand helps in finding the financial performance of the company. With the use of ratio analysis it
becomes possible to find out the solvency, profitability and liquidity of the business in accurate
manner. The ratio analysis is done on the basis of accounts which are historical knowledge but it
facilitates the study of current trend which helps in planning and future decisions.
Importance of ratio analysis
Ratio analysis is the basis for planning and financial forecasting done by the management
of the company. Ratio analysis is done on the basis of financial statements help the management
in making important decisions (Burt, 2013). Being precise and pointing on a particular aspect the
management gets attracted on the aspect which improves coordination among the managerial
personnels. It lays basis for the formulation of the budget and financial forecasts. Ratio analysis
provides actuals figures which can be compared with the standards to find out the diversion and
its cause. Ratio analysis help the company get the finance as the investors show keen interest in
companies with strong financial background, which is found out by the ratio analysis. Through
ratio analysis the proper profitability of the company can be found out which helps the
2

employees negotiate with the management about their wages and salaries. The critical valuation
of the ratios enables the company to makes contingency plans in case the analysis proves and
asks for improvement in the condition.
Types of ratio analysis
Ratio analysis contains numerous kind of ratios, the key ratios are current ratio, quick
ratio, return on assets, return on capital investment, return on equity, debt equity ratio, dividend
payout ratio, price earnings ratio, etc. (Calculation of the ratio for PBP is attached in appendix)
Return on invested capital
Figure 1 Return on invested capital
Profitability ratio is calculated by the company to find out the profit earning capacity of
the company, i.e. the percentage of profit earned in the total revenue marked. It indicates towards
the profit percentage and when compared to the last year, it also points the growth of business in
the year. It helps the management set the future forecast (Girault and Valk, 2013). According to
the return on invested capital of PBP group, Kepong and British American Tobacco, it can be
concluded that the highest return is experienced by British American tobacco. The ratio is on
decreasing phase in PBP group and it is fluctuating in case of Kepong. Hence, it shows that the
financial position of BAT is exceptionally well in comparison to the other competitive
companies.
Net Profit Margin ratio:
3

Figure 2 Net profit margin
Net profit margin is type of profitability ratios; it is calculated by division of net income
and total revenue or division of net profit by sales. Net profit margin is expressed in percentage.
The ratio indicates the margin of profit earned (Sieper and et.al., 2010). According to the net
margin ratio of the three competing companies, it can be evaluated that among three companies
PBP group has the highest net margin which denotes that the firm is more efficient in converting
sales into actual profit. Hence, the last recorded net profit margin of firm in 2017 was 24.96.
Return on Asset Ratio:
4

Figure 3 return on assets ratio
Return on assets ratio compares the relationship between the profit and the total assets of
the company. This ratio is expressed in terms of percentage. This ratio is calculated by dividing
net profit by total assets. According to the return on asset ratio of all three companies, it can be
concluded that the ROA of PBP group are fluctuating year by year and not in a good ratio but on
an average rate but the return on asset of British American tobacco is fluctuating but still the firm
has maintained a proper management of organisational total asset to make profit and utilizing
their assets efficiently (Anatolyev and Gospodinov, 2010).
Current Ratio:
5

Figure 4 Current ratio
According to the current ratio of all three companies of past 5 years, it can be evaluated
that the current ratio the assets of PBP group and Kepong are affecting the liquidity of firm is
going down as the assets are not properly utilised (Weng and Fujiwara, 2011). Hence, according
to the ratio of British American tobacco it can also be said that the organisation is trying hard to
maintain its liquidity year by year.
Quick ratio
Figure 5 Quick ratio
6

This ratio is calculated by division of quick assets from current liabilities. Quick assets is
obtained by subtracting Inventories from current assets. As per the above calculations this is to
be interpreting that the quick ratio for the financial year 2011-12 PBP Group has the highest ratio
about 2.49, Kepong and British American Tobacco were at 2.23 and 0.43 (Marin, Sarkis and
Nascimento, 2013). Same for the rest of the years the PBP Group leads with the high ratios and
the Kepong has the lowest ratios. While British American tobacco stands between this two
groups.
Financial leverage: The financial leverage of the first assessment year 2011-12 British
American group has the leverage of 2.98 and the lowest leverage was of PBP group 1.09 but the
Kepong group remains between at 1.6 of leverage (Bielecki and Rutkowski, 2013). British
American Tobacco remains on lead for the continuous years and it shows that the organisation
has the great market approach.
Cash flow per sales percentage: Calculation made at the percentage on the cash flow of
per sale. The highest sale of the year 2011-12 was recorded by the British American group which
is 15.68% of the sales and this year the PBP group has the negative percentage of -0.81 on its
sales. Kepong this year has 9.55% of the sales (Sasaki and et.al., 2013). As per the other
financial years the British American tobacco group has the largest percentage on the sales, but
there are favourable and unfavourable changes in the percentages of Kepong and PBP group.
Return on invested capital: According to the return on invested capital of PBP group,
Kepong and British American Tobacco, it can be concluded that the highest return is experienced
by British American tobacco. The ratio is on decreasing phase in PBP group and it is fluctuating
in case of Kepong. Hence, it shows that the financial position of BAT is exceptionally well in
comparison to the other competitive companies.
3. STRATEGIC ANALYSIS
3.1 PESTLE analysis
Political Factor: In order to increase the demand of food products, government of
Malaysia provides various subsidies in January 2009. This process help the country to use the
agriculture products by using organic products in their daily routine. This created opportunities
to PBP Group Berhad to produce all the agriculture products which was the first choice for their
customers.
7

Economic Factor: The price of organic food has slummed with its lowest price to about
USD$40.56 from above USD$110 in one year. It create the fear for the economy because this
changes highly affect the growth of the country. Due to increases in inflation rate, Malaysia face
the less possession in the market. It can be said that economic factors highly influenced the
purchasing power of their customers.
Figure 6 Malaysia consumer price index
Source: Sasaki and et.al., 2013
Social Factor: Changes in consumer buying behaviour highly influenced on growth of
business. Increasing population, foreign employees, taste or preference of consumers are highly
affect then price of PBP Group Berhad (Mathur, Mathur and Kenyon, 2012).
Technological Factor:Technological changes in business operations make great impact
on success of an organisation. PBP Group Berhad make various changes such as adopting IT
technology in their operational activity or using advanced techniques helps them to set-up
effective marketing strategy for attracting their customers in a large scale.
Environmental Factor: Global warming and green issues are highly concerned by the
government. In order to this, PBP Group Berhad adopt those techniques which does not make
any harm in their environment. Cited firm uses recycling strategy for reuse their products and
save energy by making various efforts (Leitner, Meissner and Martyna-David, 2015).
Legal factor: It include all the legislation like service tax (GST) which are levied by the
Malaysian government in PBP Group Berhad. This make great impact on company's growth.
8

3.2 New forces in PBP Group Berhad
By analysing the various factors with the help of PESTLE, there are some other factors
with highly affect the PBP Group Berhad company. Nowadays, digitalisation, globalisation and
deregulation is major factors which affect the cited firm's operational activity. For example:
People have more information about the products and available market which render best quality
in a low price. It can be said that cited firm face the problem with digitalisation in present time.
3.3 Operations and analysis of organisation
PBP Group Berhad has continually adopt new strategies for expanding their business in a
global market. To beat the competitive situation, management of cited firm performs all the
operations in an effective manner. Diversified culture is managed by the business and it mainly
target the young and adults of ages 20-35 years (Kernbach, Eppler and Bresciani, 2015). Firm
also various issues like demand of customers which increases in a large scale. Digitalisation and
changes in market helps the customers to get the information about the products in online. For
example: Quality of products can be pre-determined by the customers through visiting the page
of a particular company. This has make a great pressure on firm's operational process. Cited firm
also face the problem of their competitors which are available in the market with their substitute
products. In order to this, company need to adopt effective pricing strategies and complete
analysis of market so that it can overcome its threat in the competitive market.
3.4 Success Factors
There are some factors which make positive impact on PBP Group Berhad company's
success. It includes wide range of quality products, highly influenced taste in their food products
and innovation etc. Firm adopt innovative changes in their production strategies by which it can
attract the customers in large number. It deals in diversified culture, so that to satisfy the need of
every customer is the best fact which provides the firm for acquiring its pre-determined goals.
Balance score card: It shows the actual financial position of PBP Group Berhad
company in Malaysia (Houdet, Trommetter and Weber, 2012). By analysing the financial
position of an organisation, it has been analysed various situation, which are as follows:
Balance scored Specific KPI of
industry
British American
Tobacco
HEXA Food
Company
Kepong BHD
9

Malaysia Bhd
Internal growth  Number
of training
program
 New
product
 Promotion
al activity
 Turnover
of
employees
 55%
 Average
 High
 High
 80%
 Low
 High
 Less
 67%
 Moderate
 Low
 High
Process  Reviewing
ranges of
products
 Control on
Quality
 Research
and
Developm
ent
 Often
 Always
 Medium
 Often
 Sometime
s
 Good
 Often
 Always
 Poor
Customer's point
of View
Customer
satisfaction level
Medium Good Poor
Financial point of
view
Liquidity 3.33% 1.27% 1.22%
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4. IDENTIFYING STRATEGIES
4.1 Ansoff's Matrix
Figure 7 Product market Ansoff Matrix
Illustration 2: Product Market Ansoff Matrix
(Source: Doeksen and Symes, 2015)
Ansoff's matrix: Ansoff's matrix is a strategic method used for the planning to assist
organization officers to obtain their future goals. Ansoff's matrix includes 4 growth strategies.
Market penetration: PBP Group Berhad,Malaysia is targeted by the existing organisation
because of its grater market penetration. PBP Group Berhad,malaysia may adapt some business
strategies to achieve its goals.
Product development: PBP Group Berhad,Malaysia may follow such a business
strategies like developing goods, improving its product quality etc. to increase its market value.
Market development: The company can survey about different established companies.
This survey would help the company to develop its product as well as its organisation.
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Diversification: This strategy is the primary alternative and may be risky to accept by the
PBP Group Berhad, Malaysia. In the matter of mentioned organisation, new market developing
and new product developing strategies can considered to be helpful for its success.
5. LIMITATION OF FINANCIAL MODELS AND CONVENTIONAL
ANALYSIS
5.1 Limitation of Conventional analysis
 It is limited on macro factors.
 It does not assess the resources effectively.
 This strategies fail to create sustainability and growth.
 Competitive advantages does not achieved by the company.
 Digitalisation, globalisation and deregulation is main factors which make negative impact
on the growth of a business.
5.2 Limitation of financial model while analysing the performance
While using the financial model, PBP Group Berhad face various limitation of analysing
the performance. These are as follows:
 PBP Group Berhad use the model when it operate in an ideal manner.
 Firm does not have a right to enter into vaccumm which are related with the external
factors. Here, external factors are: Action done by government, economic performance
and segmentation of market etc.
 Some cases, external factors make negative impact on business operational activity.
 Analysis is totally based on the impact of internal elements which affect the performance
level of company (Amran, Ooi and Devi, 2015).
 This model is used the standard form, in which company hold its position same in
different times.
 By adopting standard tool of measurement does not provide accurate result of company.
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RECOMMENDATION
From the above analysis it can be recommended to PBP group that, the performance of
the company can be improved by improving debt equity ratio. Further, it can make its investment
better by utilizing its assets in better manner. The performance of British Tobacco is better than
that of PBP group which shows that it needs to improve its financial practices. The modelling
can be improved if the current asset ratio and return on asset ratio can be improved by the
company.
CONCLUSION
From the above report, it can be analyzed that, the performance of PBP is on increasing
phae. However, it needs to improve its finances by appropriate investment. There is a negative
impact of external factors on the financials of the company. According to PESTLE analysis of
PBP, it can be inferred that constant change in technology leads to increase the overall cost of the
organization.
Modelling
It helps PBP in creating financial presentation of all the aspects and of given security by
organisation. The company uses financial modelling to measure market direction and trends.
Further, it helps the business in comparing its financial situation with real world financial world.
It is done by inputting qualitative and quantitative data into excel sheet, income statement of past
5 or 6 years, balance sheet of 3 years, cash flow of 5 or 6 years and finally by creating model by
observing inputs and drawings outputs (Esaka and et.al., 2011).
Hence, This financing model is used by the company because it is easy to understand and
gives transparent results. Moreover, the organisation model is reliable and controls and the
problem and quickly denotes the error. The model assists in focusing on important issues, instead
of wasting time on irrelevant problems. Besides this, it is essential for PBP to design model
before working on it. Therefore, it is necessary for the company to have proper documentation of
the model so that it can be rectified easily. Henceforth, the model is used by the company
because it creates an easy flow of calculations like, from top to bottom and left to right.
According to financial modelling of PBP performed (attached in appendix) return on
invested capital it can be concluded that the company has a decrease of -3.8% by the end of the
year, if the company increases the return by 5% in 2017 the return on invested capital of the
13

company will increase by 1.97% , in 2018 return was 2.02% and in 2019 it was 2.07%, the
scenario of forecasting was positive. If the company decreased its return on invested capital by
5% the return in 2017 will be -8.13%, in 2018 will be -8.18 and in 2019 will be -8.23%, the
scenario forecasting will be negative.
According to current ratio it can be concluded that the company has increase of 0.88% by
the year end, if the company increases its forecasting scenario by 5% the company will face the
increase of 5.88% in 2017, 2018 in 5.93% and 2019 in 5.98% . The company will face positive
forecasting. If the company decreases it forecasting by 5% it will face a fall of -4.22 % in 2017, -
4.27 % in 2018 and -4.32% in 2019, which will cause a negative impact on the company.
14

REFERENCES
Journals and Books
Amran, A., Ooi, S. K. and Devi, S. S., 2015. The Impact of Business Strategies on Online
Sustainability Disclosures. Business Strategy and the Environment. 24(6). pp.551-564.
Doeksen, A. and Symes, D., 2015. Business strategies for resilience: the case of Zeeland's oyster
industry. Sociologia Ruralis. 55(3). pp.325-342.
Houdet, J., Trommetter, M. and Weber, J., 2012. Understanding changes in business strategies
regarding biodiversity and ecosystem services. Ecological Economics. 73. pp.37-46.
Kernbach, S., Eppler, M. J. and Bresciani, S., 2015. The Use of Visualization in the
Communication of Business Strategies An Experimental Evaluation. International Journal
of Business Communication. 52(2). pp.164-187.
Leitner, J., Meissner, H. and Martyna-David, E., 2015. The Debate About Political Risk: How
Corruption, Favoritism and Institutional Ambiguity Shape Business Strategies in Ukraine.
In EU Crisis and the Role of the Periphery. Springer International Publishing. pp. 3-19.
Mathur, S. S., Mathur, S. and Kenyon, A., 2012. Creating value: successful business strategies.
Routledge. pp.342-387.
Staake, T., Thiesse, F. and Fleisch, E., 2012. Business strategies in the counterfeit market.
Journal of Business Research. 65(5). pp.658-665.
Wesseling, J. H., Niesten, E. M. M. I. and Hekkert, M. P., 2015. Business strategies of
incumbents in the market for electric vehicles: Opportunities and incentives for sustainable
innovation. Business Strategy and the Environment. 24(6). pp.518-531.
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APPENDIX
Ratio analysis
Particulars 2011-12 2012-13 2013-14 2014-15 2015-16
Return on invested capital
PBP group 5.86 6.48 5.6 5.67 5.07
Kepong 13.55 9.43 9.66 7.27 11.95
British American tobacco 83.24 82.21 94.31 105.01 91.47
Net profit margin ratio
PBP group 27.91 29.66 24.77 25.97 24.96
Kepong 12.03 10.03 8.91 6.37 9.65
British American tobacco 18.28 18.23 18.81 19.86 19.2
Return on asset ratio
PBP group 5.47 6.02 5.14 5.19 4.68
Kepong 10.84 7.94 8.05 5.77 8.95
British American tobacco 52.95 58.47 67.95 73.07 60.04
Current ratio
PBP group 3.34 3.15 2.47 2.52 3.24
Kepong 3.05 2.52 2.01 1.82 1.98
British American tobacco 0.9 0.69 0.72 0.75 1.26
Quick ratio
PBP group 2.49 1.9 1.75 1.89 2.47
Kepong 2.23 1.81 1.32 1.36 1.33
British American tobacco 0.43 0.33 0.35 0.38 0.68
Financial leverage
2011-12 2012-13 2013-14 2014-15 2015-16
PBP group 1.09 1.09 1.11 1.1 1.08
Kepong 1.6 1.56 1.66 1.79 1.76
British American tobacco 2.98 2.7 2.45 2.21 1.95
Cash flow per sale percentage
16

PBP group -0.81 0.52 1.04 4.36 5.6
Kepong 9.55 4.25 -2.02 -3.46 -2.98
British American tobacco 15.68 17.31 19.87 21.07 15.72
Modelling
2011-
12
2012-
13
%
Chang
e
2013-
14
%
Chang
e
2014-
15
%
Chang
e
2015-
16
%
Chang
e
Avera
ge
change
Return on
invested capital 5.86 6.48 10.58 5.6 -13.58 5.67 1.25 5.07 -10.58 -3.08
Net profit
margin ratio 27.91 29.66 6.27 24.77 -16.49 25.97 4.84 24.96 -3.89 -2.32
Return on asset
ratio 5.47 6.02 10.05 5.14 -14.62 5.19 0.97 4.68 -9.83 -3.35
Current ratio 3.34 3.15 -5.69 2.47 -21.59 2.52 2.02 3.24 28.57 0.83
Quick ratio 2.49 1.9 -23.69 1.75 -7.89 1.89 8.00 2.47 30.69 1.77
Financial
leverage 1.09 1.09 0.00 1.11 1.83 1.1 -0.90 1.08 -1.82 -0.22
Cash flow per
sale percentage -0.81 0.52
-
164.20 1.04 100 4.36 319.23 5.6 28.44 70.87
Scenario forecasting
5+% over past trend 2017 2018 2019
1.92 1.97 2.02 2.07
2.68 2.73 2.78 2.83
1.65 1.70 1.75 1.80
5.83 5.88 5.93 5.98
6.77 6.82 6.87 6.92
4.78 4.83 4.88 4.93
17