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Critical Analysis: Apollo Food Holdings Berhad (Apollo Food Vs Ajinomoto (Malaysia) Berhad

Introduction

Financial analysis refers to the selecting, evaluating and interpreting the financial data, along with other relevant information to help in financial-decision making and investment (AREAS, 2018). A company analysis does not only look at the financial performance of a company but rather goes deeper to looking at the management, employees, shareholders and all the stakeholders of the company.

This report will focus on the financial ratios relative to the Apollo Food Holdings Berhad (Apollo Food) and Ajinomoto (Malaysia) Berhad financial statement. Further the report will analyze the directors and the audit statement for the year 2019. The corporate governance and social responsibility of the two companies will also be discussed in the report. Finally, the market position, in terms of branding, pricing and quality will also be included in the report.

Apollo Food Holdings Berhad (Apollo Food) Company Background

Apollo food Holdings Berhad (Apollo Food) manufactures and supplies confectioneries. The products the company offers are: chocolate Layer cake, Chocolate Wafer products, Layer cakes, Swiss roll products, Chocolate confectionery products and Wafer products. The brand under which the company markets its products is Apollo. The company does its sales all over Malaysia. Further it does distribution in Singapore, Taiwan, Vietnam, Thailand, China, Hong Kong and Mauritius.

The 2019 second quarter results for the Apollo Holdings were not up to the expectation, which was attributed to the weaker sales and increased cost of raw materials. In the year 2019, there was no dividend declared since the company had not met its expectation. The failure to meet the expectation was accounted to the challenging business environment and increased levels of competition by companies offering similar products.

However, despite the strong competition and the soft market, the management is still focused to maintaining profitability and market leadership. The Holdings has pledged to continue implementing cautious measures, improve its efficiency in operations and emphasizing on the quality of its products.

Nevertheless, the company has no extensive plan to expand for it to increase yields. Therefore, we expect the flat growth to continue. There is still high cost of raw materials, volatility in foreign exchange which is still a challenge to the company’s progress.

Corporate governance and corporate social responsibility of Apollo Food Holdings Berhad (Apollo Food)

Corporate governance

The company communicates information to shareholders through announcements and releasing financial results on quarterly basis (Solomon, 2020). With this, shareholders and the investors are able to view the financial performance of the company. The directors, at the annual general meeting, let the shareholders give views on the performance of the company. The shareholders are notified on the meeting in advance and a statement explaining special resolutions are released prior the meeting. If the investors, press and investment analysts request to meet the managing director occasionally he does so.

Corporate social responsibility

The group has pledged commitment to responsibility as far as corporate citizenship is concerned. Apollo group ensures this by not only delivering quality products and high income to shareholders and investors but also by ensuring it conducts business professionally, ethically and in the most responsible manner (Grayson and Hodges, 2017). Further the group pledges responsibility to employees, business partners and the community around the business arena.

The group has always acknowledged that the employees are the most crucial assets. Therefore, the company has always maintained safety and welfare of the employees. Further employees are equipped with the necessary trainings and competencies to further their skills and knowledge.

The Directors and Auditors’ Statement

The accounting records that are required by the Act have been properly kept and disclosed to all required parties. The accuracy of the financial position of the group has been duly followed, to make sure the financial statements are up to the standards of the Act.

Ajinomoto (Malaysia) Berhad company Background

Ajinomoto Co., Inc is the first and the largest producer of Monosodium glutamate. Ajinomoto is one of the Japan’s largest food producers in Japan. Apart from seasonings, Ajinomoto also produces frozen and processed foods, dairy products, pharmaceuticals, beverages, edible oils and amino acids. Despite the company being operational in 20 countries, 80% of its revenue comes from home. MSG was discovered in the University of Tokyo in 1908, by two brothers who formed Ajinomoto and started doing commercial production. In 1909, they started marketing as Ajinomoto.The company majored on international sales and had a powerful base in development of chemical. An office was opened in New York in 1917. Later offices were opened across Asia which gave the company global exposure prior to other Japanese companies.

In 1960s the company underwent advancement towards globalization. Most of the global expansion was evident in Asia and South America. However, the company started joint ventures with the US and the European nations, the company started venturing into other continents and similarly doing expansions domestically.

Corporate governance and corporate social responsibility of Ajinomoto (Malaysia) Berhad

Corporate governance

The company avails financial information to the investors and shareholders on quarterly basis (Solomon, 2020). The shareholders and the investors are therefore given an opportunity to react on the stability of the company and probably give view at the annual general meeting. The shareholders are given enough notice on the meeting. Other parties such as the press, investors and potential investors are allowed to meet the managing director to get information on the financial position of the company. However, this is on request.

Corporate social responsibility

The group has pledged commitment to responsibility as far as corporate citizenship is concerned. The group has always delivered quality products to the customers and also released high yields (Grayson and Hodges, 2017). In additional to this, the company has always conducted business, professionally, ethically and in the most responsible manner.

Employees have been their number one since they have recognized that they are the most important asset in the company. The safety and welfare of the employees has always been the group’s priority. In addition to this, the group has equipped employees with necessary trainings, competencies and knowledge.

 

 

The Directors and Auditors’ Statement

The books of accounts have been properly and accurately kept. The accuracy procedures provided by the act regarding the financial statements of the group has been duly followed, to ensure they are up to the standard.

Apollo Food Holdings Berhad (Apollo Food) Company Leverage Ratios 2018

Total Assets turnover 2018

Total Assets turnover Sales                190,818              0.724
Total Assets                263,533

The total assets turnover ratio, measures the efficiency of a company is in generating revenue from assets (Irman and Purwati, 2020). A company with an asset turnover ratio of between 0.25 and 0.5 is considered good. Apollo Food Holdings Berhad (Apollo Food) Company had an asset turnover ratio of 0.724 in 2018 which was quite good and financially healthy.

Fixed Assets turnover 2018

Fixed Assets turnover Sales                190,818              1.58
Fixed Assets                120,619

 

The fixed assets turnover ratio, measures the efficiency of a company is in generating revenue from fixed assets. A company that has a fixed asset turnover ratio of between 0.25 and 0.5 is considered good. Apollo Food Holdings Berhad (Apollo Food) Company had a fixed asset turnover ratio of 1.58 in 2018 financial year which surpassed the average requirement. This illustrates a financially performing company.

Total Debts to Asset Ratio 2018

Total Debts to Asset Ratio Total Debt                19,918              0.076
Total Assets                263,533

This ratio basically illustrates the advancement of a company as far as acquisition of assets is concerned. Apollo Food Holdings Berhad (Apollo Food) Company had 7.6% total liabilities of the total assets in 2018. This is relatively healthy for the company, since it has more assets than liabilities.

Total Debt to Equity Ratio

Total Debt to Equity Ratio Total Debt                19,918              0.082
Total Equity                243,615

Apollo Food Holdings Berhad (Apollo Food) Company has a debt equity ratio of 0.082 which means that the company used $0.082 for every $1 of equity in the financial year 2018(Irman and Purwati, 2020). This means that Apollo Food Holdings Berhad (Apollo Food) Company used more financing from equity.

Apollo Food Holdings Berhad (Apollo Food) Company Leverage Ratios 2019

Total Assets turnover 2019

Total Assets turnover Sales                188,836              0.71
Total Assets                266,041

The total assets turnover ratio, gives how much a company generates from assets (Irman and Purwati, 2020). A company’s asset turnover ratio of between 0.25 and 0.5 is considered good. Apollo Food Holdings Berhad (Apollo Food) Company had an asset turnover ratio of 0.71 in 2019 which was quite good and financially healthy. Comparing the 2018 and 2019 total asset turnover ratios, there was a slight fall from 0.724 to 0.71. However, the difference was material and does not affect the stability of the company.

Fixed Assets turnover 2019

Fixed Assets turnover Sales                188,836              1.66
Fixed Assets                113,491

 

The fixed assets turnover ratio is a leverage ratio that estimates the sale proceeds from fixed assets. A company with a fixed asset turnover ratio of between 0.25 and 0.5 is considered good. Apollo Food Holdings Berhad (Apollo Food) Company had a fixed asset turnover ratio of 1.66 in 2019 is way far above the standard ratio therefore the company is considered financially thriving and healthy.

Total Debts to Asset Ratio 2019

Total Debts to Asset Ratio Total Debt                20,970              0.079
Total Assets                266,041

This ratio basically illustrates the advancement of a company as far as acquisition of assets is concerned. Apollo Food Holdings Berhad (Apollo Food) Company had 7.9% total liabilities of the total assets in 2019. This is relatively healthy for the company, since it has more assets than liabilities.

Total Debt to Equity Ratio

Total Debt to Equity Ratio Total Debt                20,970              0.086
Total Equity                245,071

Apollo Food Holdings Berhad (Apollo Food) Company has a debt equity ratio of 0.086 which means that the company used $0.086 for every $1 of equity in the financial year 2019. This means that Apollo Food Holdings Berhad (Apollo Food) Company used more financing from equity.

 

Ajinomoto (Malaysia) Berhad Leverage Ratios 2018

Total Assets turnover 2018

Total Assets turnover Sales                1,114,784              0.78
Total Assets                1,426,230

The ratio is a comparison between the amount of revenue in dollars to the total assets (Irman and Purwati, 2020). The ratio further shows the efficiency of an organization in generating revenue from assets. The recommended asset turnover ratio is between 0.25 and 0.5. Ajinomoto (Malaysia) Berhad had an asset turnover ratio of 0.78 in 2018 which was quite good and financially healthy.

Fixed Assets turnover 2018

Fixed Assets turnover Sales                1,114,784              1.36
Fixed Assets                822,069

The ratio compares the amount of sale proceeds to the fixed assets. The ratio is further the big picture of an organization’s efficiency in generating funds from fixed assets. A company’s asset turnover ratio of between 0.25 and 0.5 is recommended for a healthy company. Ajinomoto (Malaysia) Berhad had a fixed asset turnover ratio of 1.36 in 2018 which was quite good and financially healthy. Further the fixed asset turnover ratio surpassed the minimum target which means that the fixed assets were helping the company generate enough revenue.

Total Debts to Asset Ratio 2018

Total Debts to Asset Ratio Total Debt                705,616              0.49
Total Assets                1,426,230

This ratio basically illustrates how a company is advanced as far as acquisition of assets is concerned (Irman and Purwati, 2020). Ajinomoto (Malaysia) Berhad had 4.9% total liabilities of the total assets in 2018. This is relatively healthy for the company, since it has more assets than liabilities. The analysis shows that the company’s total liabilities were less than half the total assets.

Total Debt to Equity Ratio

Total Debt to Equity Ratio Total Debt                705,616              0.098
Total Equity                720,613

Ajinomoto (Malaysia) Berhad had a debt equity ratio of 0.098 in 2018 financial year which means that the company uses $0.098 for every $1 of equity. This means that Ajinomoto (Malaysia) Berhad uses more financing from equity.

 

 

 

Ajinomoto (Malaysia) Berhad Leverage Ratios 2019

Total Assets turnover 2019

Total Assets turnover Sales                1,127,483              0.80
Total Assets                1,393,869

 

The ratio compares the amount of revenue in dollars to the total assets (Irman and Purwati, 2020). The ratio further answers the question of whether a company is efficient enough in generating revenue from total assets. The minimum recommended asset turnover ratio for any company is that which is between 0.25 and 0.5. Ajinomoto (Malaysia) Berhad had an asset turnover ratio of 0.8 in 2019 which was quite good and financially healthy. This ratio was a little bit higher as compared to the ratio of the same company in the financial year 2018. The financial year 2018 was 0.78.

Fixed Assets turnover 2019

Fixed Assets turnover Sales                1,127,483              1.404
Fixed Assets                802,701

 

The ratio is calculated by dividing the revenue in dollars to the fixed assets. The ratio is further an efficiency indication of an organization in generating revenue from its fixed assets. A company’s fixed asset turnover ratio of between 0.25 and 0.5 is considered good. Ajinomoto (Malaysia) Berhad had an asset turnover ratio of 1.404 in 2019 which even surpassed the recommended ratios of between 0.25 and 0.5.

Total Debts to Asset Ratio 2019

Total Debts to Asset Ratio Total Debt                707,909              0.508
Total Assets                1,393,869

 

This ratio basically illustrates the advancement of a company as far as acquisition of assets is concerned (Irman and Purwati, 2020). Ajinomoto (Malaysia) Berhad had 50.8% total liabilities of the total assets in 2019. This is relatively healthy for the company, since it has more assets than liabilities. However, the liabilities had slightly increased when compared to the 2018 ratio.

Total Debt to Equity Ratio

Total Debt to Equity Ratio Total Debt                707,909              1.03
Total Equity                685,960

The ratio compares total debt to total equity financing. Ajinomoto (Malaysia) Berhad had a debt equity ratio of 1.03 in 2019 financial year which means that the company uses $1.03 for every $1 of equity. This means that Ajinomoto (Malaysia) Berhad used more debt than equity financing. This is opposed to 2018 where we saw that the company used more equity financing.

 

Apollo Food Holdings Berhad (Apollo Food) Company Profit Ratios 2018

Gross Profit Margin

Gross Profit Margin Gross income                  40,255              0.21
Sales                190,818

Financial analysts use the Gross profit margin to assess the financial health of a company by finding out the amount of money left over from the sales of products when the cost of goods sold are subtracted from the gross sales. A gross profit ratio of 20% is considered high enough and a ratio of 5% and below is low. The gross margin ratio of Apollo Food Holdings Berhad (Apollo Food) Company was 21% in 2018 which was high enough.

Operating Profit Margin

Operating Profit Margin Operating Profit                  14,725              0.077
Sales                190,918

This is a ratio which estimates the amount of profits a company produces from the continuous operations of a company. A relatively higher operating margin means that a company is able to generate enough funds from its business operations. An operating profit margin of 15% and above is considered high enough. Apollo Food Holdings Berhad (Apollo Food) Company had an operating profit margin of 7.7% in 2018 which was still below the recommended percentage.

Net Profit Margin

Net Profit Margin Net income                      10,365              0.054
Sales                190,918

Basically, the ratio is expressed as a percentage but can also be expressed in decimal form. A net margin profit of 20% is considered high enough. However, a net profit margin of 5% and below is considered significantly low. Apollo Food Holdings Berhad (Apollo Food) Company had a net profit margin of 5.4% which was below the expected margin.

 

Apollo Food Holdings Berhad (Apollo Food) Company Profit Ratios 2019

Gross Profit Margin

Gross Profit Margin Gross income                  46,766              0.24
Sales                188,836

Gross profit margin is a ratio gotten by dividing the gross income and the sales. A gross profit ratio of 20% is considered high enough and a ratio of 5% and below is low. The gross margin ratio of Apollo Food Holdings Berhad (Apollo Food) Company was 24% in 2019 which was high enough. The margin surpassed the 2018’s margin by 3% and furthers the recommended target by 4%.

 

Operating Profit Margin

Operating Profit Margin Operating Profit                  23,755              0.126
Sales                188,836

This operating profit ratio is an estimate the amount of profits a company produces from the continuous operations of a company. If a company has a high operating margin then that company is able to generate enough funds from its business operations. An operating profit margin of 15% and above is considered high enough. Apollo Food Holdings Berhad (Apollo Food) Company had an operating profit margin of 12.6% in 2019 which was not very far from the recommended percentage. The ratio was even higher than the 2018 ratio which was 7.7%.

Net Profit Margin

Net Profit Margin Net income                      17,456              0.092
Sales                188,836

 

This is a ratio that shows what percentage of net income is in the Gross sales. Basically, the ratio is expressed as a percentage but can also be expressed in decimal form. A net margin profit of 20% is considered high enough. However, a net profit margin of 5% and below is considered significantly low. Apollo Food Holdings Berhad (Apollo Food) Company had a net profit margin of 9.2% 2019 which was average. The net-margin ratio however, almost doubled the 2018 ratio which was 5.4%.

Ajinomoto (Malaysia) Berhad Profit Ratios 2018

Gross Profit Margin

Gross Profit Margin Gross income                  394,666              0.35
Sales                1,114,784

Analysts use the Gross profit margin to find the gross income that is gotten from the sales (Öztürk and Karabulut, 2018). A gross profit ratio of 20% is considered high enough and a ratio of 5% and below is low. The gross margin ratio of Ajinomoto (Malaysia) Berhad was 35% in 2018 which was high enough. This ratio shows that the company is generating enough income from the sale proceeds.

Operating Profit Margin

Operating Profit Margin Operating Profit                  78,706              0.071
Sales                1,114,784

 

This is a ratio which estimates the amount of profits a company produces from the continuous operations of a company (Öztürk and Karabulut, 2018). A relatively higher operating margin means that a company is able to generate enough funds from its business operations. An operating profit margin of 15% and above is considered high enough. Ajinomoto (Malaysia) Berhad had an operating profit margin of 7.1% in 2018 which was half recommended percentage.

Net Profit Margin

Net Profit Margin Net income                      68,174              0.061
Sales                1,114,784

The ratio is arrived at by dividing the net income by the sales. Basically, the ratio is expressed as a percentage but can also be expressed in decimal form. A net margin profit of 20% is considered high enough (Öztürk and Karabulut, 2018). However, a net profit margin of 5% and below is considered significantly low. Ajinomoto (Malaysia) Berhad had a net profit margin of 6.1% 2018 which was far below the recommended percentage. The ratio means that the company is not generating enough net income from its gross sales.

Ajinomoto (Malaysia) Berhad Profit Ratios 2019

Gross Profit Margin

Gross Profit Margin Gross income                  395,578              0.35
Sales                1,127,483

This ratio compares the gross income and the total sales of a company. The gross margin ratio of Ajinomoto (Malaysia) Berhad was 35% in 2019 which was high enough. The ratio was similar to that of 2018 meaning that the company maintained its operations across the two years.

Operating Profit Margin

Operating Profit Margin Operating Profit                  53,149              0.047
Sales                1,127,483

This is gotten by dividing the operating profit by the sales. A relatively higher operating margin means that a company is able to generate enough funds from its business operations. An operating profit margin of 15% and above is considered high enough. Ajinomoto (Malaysia) Berhad had an operating profit margin of 4.7% in 2019 which was far below the recommended percentage. Therefore the company in 2019 was not able to generate enough operating profit from the gross sales.

Net Profit Margin

Net Profit Margin Net income                      39,004              0.035
Sales                1,127,483

 

The net profit margin ratio compares the net income and the gross sales. A net margin profit of 20% is considered high enough. However, a net profit margin of 5% and below is considered significantly low. Ajinomoto (Malaysia) Berhad had a net profit margin of 3.5% 2019 which was far below the recommended percentage. Comparing the net profit margin of 2018, the company further deteriorated. The 2018 ratio was 6.1% and the 2019 3.5%

The financial analysis of the two companies has clearly shown that the two companies excelled in the areas of asset and debt management. All the leverage ratios were above the recommended figures. However, the profitability ratios in all the companies were way below the expected. Therefore, ways to improve on the profitability of the two companies is important. Some of the areas the companies can improve on profitability include:

Management of costs – both Ajinomoto (Malaysia) Berhad and Apollo Food Holdings Berhad (Apollo Food) Company has an obligation to improve on their cost management systems so that they can improve on profitability. The key areas to look at when managing costs are: the suppliers, the acquisition of capital assets and in the production (Drury, 2019). A company ought to have as minimal cost as possible for it to record high profitability levels.

Further, the company’s should be very efficient when purchasing. The finance group should be able to identify the key areas of expenditure so that management can know where the money is being spent most. After identifying the key spending areas, the purchase group should do necessary bargain with the suppliers to ensure they buy at the cheapest price possible.

Again, a lot of wastage in production can lead to losses on firms. (Malaysia) Berhad and Apollo Food Holdings Berhad (Apollo Food) Company should ensure as minimal waste as possible to minimize on the losses. When losses are minimized, the profit margins will be stable.

The two companies should further increase on sales. There are two ways a company can increase on revenue. One a company can raise the prices of the products. Further a company can maximize on the sales. It is however recommendable for a company to increase on sales instead of increasing the prices.

Market positioning of Apollo Food Holdings Berhad (Apollo Food) Company

Apollo Food Holdings Berhad (Apollo Food) Company as a holding company engages in management services to subsidiaries. The company has two operating segments which are: the investment holding and distribution, marketing and manufacturing. In marketing and distribution, the key brands are compound chocolates, cakes and chocolate confectionery products. The company distributes its products in Malaysia and other overseas markets.

Lately, the company has achieved its sales expectation. For instance, the second quarter of the financial year 2020, the sales were below the expectation. The low sales were attributed to the harsh business environment and the stiff competition from other manufacturers.

However, the company remains focused in maintaining market position and profitability. Measures to improve the quality of the product and the efficiency of the way it operates (Ling, 2019). The company however has a small-scale plan to improve on earnings. The most adamant challenge is the foreign exchange volatility.

Apollo food Holdings are launching new quality products every day to that will attract more customers. The company is working day in day out to avail the necessary resources and improving the quality management programs. Apart from the high quality, the raw materials used, yield attractive products. The Apollo Holdings uses the best Europe’s fabrication machine to produce wafer and sheet cake. The firm continuously upgrades its game to ensure it is ahead of its rivals. Further, Apollo has accredited with the HALAL which ensures the quality control measures. One of the aims of the Apollo Holdings is to maintain the quality that satisfies the demands of the customer.

Market positioning of Ajinomoto (Malaysia) Berhad

Ajinomoto has the best fermentation technology to ensure the highest quality and most pure amino-acids and non-animal origin in the market (Tan, 2018). Due to the high cost of the raw materials used has contributed to the increased prices of the products. The company pledges to bring forth the best quality products to their customers, since it is a global leader in pharmaceutical and amino-acids. The company has continuously explored opportunities with an aim of keeping the production cost as low as possible, but still maintaining the same pledged level of quality and purity.

Conclusion

Apollo Holdings and Ajinomoto (Malaysia) Berhad could manage their liquidity and operational risk effectively, regardless the profitability ratio being below the set benchmark. On the basis of profitability, asset and debt management, we can conclude that the two companies have the potential to generate profit.

The companies should consider upgrading and reduce any form of inefficiency, which may lead to losses. Further, to maintain and improve on profitability, the companies should implement liquidity management and control of inventory.

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