United Kaipara Dairies Company: Financial Analysis

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Selection of a Company

United Kaipara Dairies Company PSC (UNIKAI) Company operates in the agricultural food processing industry. This company has been in existence for over three decades and specializes in dairy products. I have always had a special interest in working in the production department of this company, especially in the QC. Due to its expansive strategies, the company has featured as one of the most successful food processing companies in Dubai. Besides, the company is facing interesting opportunities for growth due to the expansion of its customer base.

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Choice and background of the company

The table below show the contact information of the company.

Contacts
1 Postal address Po Box 6424
Dubai
United Arab Emirates
2 Telephone +971(4)3382133
3 Facsimile +971(4)3383099
4 Website www.unikaifoods.com

UNIKAI, based in Oman, was formed 11th April 1977. It is located on the Arabian Peninsula, United Arab Emirates. The company was formed through a pronouncement of the ruler of Dubai. The gap in the provision of a wide range of pasteurized dairy products created the need to form a dairy company hence the formation of UNIKAI. The primary line of business of the company is to offer daily products such as ice cream, frozen desserts, milk packing, yogurt, and chilled dairy products among others. The company has also diversified into another secondary line business that is, for imports of dry food products for resale in the United Arab Emirates Products of the company are sold both in the domestic and international market. In recent years, the company has been audited by Klynveld Peat Marwick Goerdeler Corporation (KPMG).

UNIKAI is a publicly-traded company in the Dubai Financial Market PJSC with a ticker symbol – UNIKAI. The Chief Executive Officer of the company is Mustafa Sidiki. The chairman of the board is Obaid Al Mulla and the vice-chairman is Ali Al Owais. Other board members are Humaid Al Tayer, Ousama Seddiqi, Ali Al Shamsi, and Mohammed Sualeheen. In addition, the total number of employees of the company is 1,582. The main subsidiary of the company is Unikai and Company LLC. It holds 100% equity in the company.

Overview of the annual report

Financial highlights in the balance sheet

Item 2010
AED’000
2011
AED’000
Change
AED’000
Total current assets 133,389 111,684 (21,705)
Total non-current assets 82,653 74,115 (8,538)
Total current liabilities 53,932 36,469 (17,463)
Total noncurrent liabilities 11,249 12,212 963
Total amount of stockholders’ equity 150,861 137,118 -13,743

From the table above, there was a decline in the amount of total current assets and total non-current assets. The number of current liabilities declined while total non-current liabilities increased. Also, the total amount of stockholders’ equity declined.

Financial highlights on the income statement

Item 2010
AED’000
2011
AED’000
Change
AED’000
Total (operating revenue) 372,392 386,593 14,201
Cost of goods sold 264,816 305,616 40,800
Total expenses before income taxes 91,576 90,620 (956)
Non – operating (or extraordinary) gains and losses 2,420 3,993 1,573
Earnings per common share 65 (20) (85)

From the above table, the total operating revenue and cost of sales increased Total expenses before tax declined. The non-operating gains increased. Finally, earnings per share declined.

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Financial highlights on the statement of cash flow

Item 2010
AED’000
2011
AED’000
Change
AED’000
Net cash inflow (outflow) from operating activities 33,500 13,693 (19,807)
Net cash inflow (outflow) from financing activities (8,250) (7,625) 625
Net cash inflow (outflow) from investing activities (15,986) (5,812) 10,174
Net increase (decrease) in cash during the year (1,686) (1,430) 256

From the above table, only net cash flow from operating activities declined while rest increased.

The company fillings

All companies in all countries are expected to file the registration statements of the company, periodic reports and other standard forms. Examples of forms filed by UNIKAI are F-1 (registration statement of the company), S-1 (General form of the registration statement), 10-Q (quarterly reports), 10-k (Annual report), 8-K (interim report) and 11-K (annual report of employee stock purchases and savings). Out of all the reports filed by the company, the most useful reports are 10-Q (quarterly reports), 10-k (Annual report), and 8-K (interim report). These reports are of major concern for the stakeholders of the company. Besides, these reports show the contribution of the company to the economy of the United Arab Emirates.

Operating activities

The operating activities of the company the past two years

Item 2010
AED’000
2011
AED’000
Total (operating revenue) 372,392 386,593
Cost of goods sold 264,816 305,616
Total expenses before income taxes 91,576 90,620
Income taxes (415) (298)
Net income (loss) 18,005 (5,948)
Earnings per common share 65 (20)

From the table, the company net financial results declined in the two year period. Further, the company had other incomes which originated from the sale of scrap, foreign exchange gains and proceeds on the sale of property, plant and equipment. The company did not have any extraordinary gains or losses, income from discontinued operations or the cumulative effect of accounting changes during the years.

The table below shows the income from operating activities and net income from the continued operations of the company for the past two years.

The income from operating activities and net income from the continued operations of the company for the past two years

From the table, cash flow from operating activities exceeds the net cash flow from continued operations. It is attributed to the fact that cash flow from operating activities eliminates the financial transactions which do not involve actual movement of cash such as depreciation, impairment of assets, and provision for tax. Further, cash flow from operating activities takes into account the working capital changes such as changes in inventories, trade and other receivables, trade and other payables, the effect of related parties and employee terminal benefits. This is the major cause of the difference pointed out above.

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The table below shows the balances of net account receivable and inventory for the two-year period.

Item 2010
AED’000
2011
AED’000
1 Net account receivables 43,279 42,030
2 Inventories 87,208 68,005

From the table, it is evident that there was a decline in both net accounts receivables and inventories. Both net account receivables and inventories declined.

Accounting methods used

Revenue from the sale of goods is measured at the fair value of the consideration received or receivable fewer returns and allowances, trade discount and volume rebates. Further, the revenue is recognized in profit or loss after transferring a considerable amount of risk to consumers. Inventories are valued at a lower cost and net realizable value after taking into consideration obsolete and slow-moving items. Finally, accounts receivables are initially measured at fair value. Costs attributed to the transactions are added to the fair value.

Analyzing of operating activities

The table below shows values of various ratios for the two year period

Item 2010 2011
1 Gross profit margin 28.89% 20.95%
2 Operating profit margin 5.39% (0.44%)
3 Net profit margin 4.83% (1.54%)
4 Receivables turnover 8.6044502 9.1980252
5 inventory turnover 3.0366021 4.4940225
6 Asset turnover 1.7237019 2.0807055
7 Rate of return on total stockholders’ equity 11.93% (4.34%)

From the table, it is evident that the company had a decline in profitability as shown by a decline in gross profit, operating profit and net profit margin. Return on total stockholders’ equity also declined due to the decline in profitability. However, the level of activity of the company increased as shown an increase in activity ratios such as receivable turnover, inventory turnover and asset turnover.

Investing activities

The table below shows an analysis of investing activities of the company.

Non-current assets 2010 2011
1 Property, plant and equipment 76,689 68,321
Percentage change from the beginning of the year 2.79% (10.91%)
2 Available for sale investment 5,964 5,794
Percentage change from the beginning of the year (1.47%) (2.85%)

The percentage change shows that the company had a decline in non-current assets at the end of each year. The percentage decline for plant property and equipment for 2011 was greater than 5%. This was attributed to the decision by the company to dispose of transportation and distribution equipment. It was done in accordance with the management decision to dispose of commercial vehicles which were lying idle.

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The table below shows the proportion of noncurrent assets to total assets.

Item 2010 2011
1 Total non-current assets 82,653 74,115
2 Total assets 216,042 185,799
Proportion 38.26% 39.89%

The proportion of non-current assets to total assets is fairly stable over the two years at 38.26% in 2010 and 39.89% in 2011. A company should tie a reasonable amount of resources into non-current assets because they are used to facilitate the generation of income. The proportions above show that the company holds a reasonable amount of non-current assets.

Analyzing of investing activities

The table below shows the rate of return on total assets of the company.

Return on total assets (Net income/total assets) 2010 2011
Accrual basis 8.33% (3.20%)
Cash flow basis 15.51% 7.37%

The two approaches to measuring return on total assets show a decline in return on assets during the two year period. The cash flow approach gives higher values than the accrual basis. The accrual basis is more indicative of the financial performance of the company than the cash flow basis because it takes into all changes in investing. Cash flow basis only takes into account only changes that are accompanied by cash flows. From the ratios above, it is evident that the company generates dismal returns from the use of assets of the company. The ratios could also show that the company has been undertaking expansion and modernization by disposing of old assets and acquiring modern equipment. An analyst needs to look at the fixed asset movement schedule to be able to verify with certainty the investing activities of the company.

Debt financing

The table below summarizes the debt of the company for the past five years.

Debt 2008 2009 2010 2011
Current liability 73,832 80,890 53,932 36,469
Non-current liability 11,249 12,212
Total liability 73,832 80,890 65,181 48,681
Percentage change in current liability 10% (33%) (32%)
Percentage change in non-current liability 8.56%

The current liabilities increased in 2010 thereafter it declined in subsequent years. In 2008 and 2009, the company did not have long-term liabilities. The long-term liability reported in 2010 and 2011 were the employees’ terminal benefits. The company relies on bank overdraft, trade and other payables, and amounts due to related parties for debt financing. Further, the company does not have any contingent liability.

Equity financing

Debt 2008 2009 2010 2011
Share capital 25,000 25,000 27,500 30,250
Reserves 95,521 116,195 123,361 106,868
Total shareholders’ equity 120,521 141,195 150,861 137,118
Change in equity 20,674 9,666 -13,743
Number of shares 250,000 250,000 275,000 302,500
Change in number of shares 0 25,000 27,500
Total dividends 7,500,000 7,500,000 6,875,000 0
Dividend per share 30 30 22 0
Dividend yield 30% 30% 22% 0%
Dividend payout ratio 35.05% 26.30% 38.18% 0

The table above shows the financing activities of the company. Other than the information shown in the table, it is also important to note that 27,500 shares were issued for considerations other than cash.

Analyzing financing activities

From the review of the liabilities of the company and the stockholders’ equity, it is evident that the company uses more equity financing than debt financing. This implies has low leverage. There has been no material change in the capital structure of the company other than the introduction of employees’ terminal benefits. Further, the company does not have any long-term outstanding long-term notes or bonds payable. The table below shows various ratios for the company.

Ratio 2010 2011
1 Current ratio 2.473281169 3.062688532
2 Quick ratio 1.670640807 1.909950917
3 Debt to equity ratio 0.60125546 0.637604107
4 Times interest earned ratio 16.86563307 -3.921602787

Comparison with industry benchmark

Reflectively, the net profit margin is above the average of 4.7% in this industry. Besides, the equity ratio as a proportion of the financial performance falls within the 4.8 mark of this industry. In addition, the gearing of this industry has a potential growth of 4.7 % annually which is almost the same gearing of the industry. Moreover, the company has been consistent in the production frontier and currently controls over ten percent of the segment industry. Conclusively, the financial performance of this industry is geared to sustainable growth with debt to equity ratio below 2.8.

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BusinessEssay. (2022) 'United Kaipara Dairies Company: Financial Analysis'. 25 November.

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BusinessEssay. 2022. "United Kaipara Dairies Company: Financial Analysis." November 25, 2022. https://business-essay.com/united-kaipara-dairies-company-financial-analysis/.

1. BusinessEssay. "United Kaipara Dairies Company: Financial Analysis." November 25, 2022. https://business-essay.com/united-kaipara-dairies-company-financial-analysis/.


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BusinessEssay. "United Kaipara Dairies Company: Financial Analysis." November 25, 2022. https://business-essay.com/united-kaipara-dairies-company-financial-analysis/.