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Carlsberg Diversification or Expansion

Essay by   •  December 12, 2018  •  Case Study  •  1,270 Words (6 Pages)  •  52 Views

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Summary of Case

ABC Consulting Sdn. Bhd. is a specialized consultancy firm which deals with businesses who are in financial distressed and turning them around. Despite being profitable in the services that they have provided to variety of businesses, Mr. Stanley felt that the firm spent too much time in handling business turnaround services that the cash flow of the firm had become irregular. The firm was suggested to start looking into proposing schemes to cash-rich companies that wanted to expand, diversify or venture into profitable businesses. David who has been working at the firm for three years, begun to research on the beer and stout industry as there might have been suggested that businesses are facing hurdles due to high excise duties. Carlsberg was one of the largest market holders in that industry became a target for the firm to provide these consultancy services.

Carlsberg Company Background - mirole

Very profitable – largest market holder – incorporation in ___ - share prices has been on a high – excise duties increasing

Competitors - Mirole

Guinness Anchor Bhd. (GAB) one of competitors in beer industry in Malaysia

Diverse into Halal product – sparkling fruit beer

Issues of Case

Basically, Carlsberg is currently operating its business at a steady level in Malaysian market. But there are concerns about the current business operations as to it profits from the few years back have been decreasing and the excise duties have been increasing gradually every year. Even when their profits were decreasing, the share price of the business was still at a high compared to other competitors.

Excise duties in Malaysia have been increasing throughout the years and it is a concern to all companies in the beer and stout industry as they might not be able to cope wit the high costs of the business. These excise duties are increased by the government to reduce consumptions of these types of products. Thus, these taxes are expected to increase further in the future and might be a going concern for companies.

To add…

Ratio Analysis

Carlsberg Malayia Sdn. Bhd.

Categories

Ratios

2008

2007

Liquidity

Current Ratio

3.24

4.12

Quick Ratio

2.66

3.47

Profitability

ROA

0.12

0.13

ROE

0.16

0.17

Profit Margin

0.08

0.09

Gearing

Debt Ratio

0.25

0.21

Debt-Equity

0.34

0.26

Market

Dividend Payout

1.08

1.00

Guiness Anchor Berhad.

Categories

Ratios

2008

2007

Liquidity

Current Ratio

2.15

2.30

Quick Ratio

1.01

1.06

Profitability

ROA

0.20

0.20

ROE

0.31

0.29

Profit Margin

0.11

0.10

Gearing

Debt Ratio

0.34

0.31

Debt-Equity

0.52

0.46

Market

Dividend Payout

0.79

0.82

Comparison between Carlsberg and GAB

Based on the figures in the table above, Carlsberg is in a good position to diverse its current business operation. The liquidity ratio for Carlsberg is more than 1 which means its business is liquid enough to diverse into new market segment. The gearing ratio for Carlsberg is more than 1 which means that it can pay back its debts with its current assets. Based on the dividend payout calculation made above, the company is reflecting a high dividend payout to its shareholders given the increasing cost in excise duties. Therefore, Carlsberg have slight advantage over Guinness Anchor Berhad based on overall ratios calculated above. Thus, it should diverse its business into halal market segment to further increase its profits and rising it portfolio in Malaysian market.

SWOT Analysis

Strengths - mirole

Globally well-known

Strong customer brand loyalty

Market leading position

Large scale of production

Capabilities of adapting to new environmental policies

Weaknesses - taufik

Lack of expertise to create new things

High production costs

Deficiency in technology

Opportunities - zaril

Attract more investors

Increase growth in premium segment

Possible for greater advantage of economic scale

Threats

Strict rules and regulations

When diverting into a Halal market, there are many rules and regulations that Carlsberg must comply.  Especially when moving into a Halal product operation. Carlsberg would need to get the authorities to approve their product and its operations to ensure that it is within the Shariah Law. Plus, their factory would need to be regularly checked for health and cleanliness issues. Carlsberg might have difficulties into complying with these regulations as they are not familiar with this.

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