Advance Strategy: Savola Group

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Advance Strategy: Savola Group

Table of Contents

Introduction:

Mission and Vision:

Internal assessment:

Current Ratio:

Return on assets:

Debt to worth ratio:

Profitability Ratio:

External Assessment:

Strategy Formulation:

Works Cited

Introduction:

Savola Group a Saudi Arabia based company. The company was incorporated way back 1979. The company is the manufacturer and seller of edible oil and vegetable ghee. The company has become one of the most successful and fastest growing company in UAE, in the edible oil and food market. The company has presence in Gulf and the Middle East Region, North African and Turkey. The product portfolio includes Edible Oils, Vegetable Ghee, Sugar, and Pasta. Savola Group has its own hypermarkets and super markets in UAE and in many other regions. The revenue and the profit of the company has grown substantially. The profit figure of 2013 was pegged at SAR 2.07 Billion, an increase 21.6% from the 2012 figure. The revenue figure for 2013 stood at SAR 26.6 Billion in comparison to SAR 25.3 Billion of 2012 (Group, 2015).

The auditing part is not only to express view and opinions about the financial statement of any entity it also involves the professional ethics, scepticism during the course of the audit. The audit is more related to conduct of audit and expressing the opinion about the manner in which accounts are maintained. The audit report shall also contain the reservations about financial statements. The auditor shall comply with the ethical requirement to the audit of financial; statement. The auditing part will be completed within next 30 days and the complete over view of the company can be prepared and understood from this exercise.

The business strategy of the company is to grow in the region and to increase its foot hold in that region. The economics concepts plays important role taking the ultimate decision on business policies. The managerial economics is all about creating the right mix of resources to attain the best possible result for the company. The above definitions establish the correlation between theory of economic and business decision making. The managerial economics is most modern concept in terms of an organisation effectively using the firm’s scare resources. The managerial economics is all about making decision regarding the customer base, competitor and future decision making. The decision making process draws information from regression analysis, correlation and calculus (Stengel, 2011). The applicability of strategic planning and managerial decision making can be found in following areas;

  1. Assessment of Fund requirement for investment.
  2. Source of fund
  3. Selection of business area
  4. Choice of product
  5. The output has to be determined
  6. The price of the product
  7. The technology to be used for production
  8. Sales promotion

The strategic planning of the company includes investment in the growth sector and to increase its product portfolio further. The company has planned investment proposal for the nest few years and the company is also increasing its stake in various subsidiaries around the world. Savola Group is planning to make support industries and maintaining an active investment portfolio. The company has planned to develop complementary brands and production abilities in coming period of 2016 to 2019.

Mission and Vision:

The mission and the vision statement is the practice of capturing someone’s whish and desire in a paragraph. The company has its mission statement that and that talks about the openness and the transparency in the business and commerce.

"In terms of our culture of “The Balanced Way”, we at The Savola group are committed to our Social Responsibility, and we will work relentlessly in achieving world class standards of openness, transparency and accountability towards all our stakeholders, and build bridges to reach out and serve the communities we operate in (Group, Mission , 2015). "

The vision of the company is to become the top notch food products manufacturing company in Middle East and to hold the largest market share in that region.

In UAE Savola is facing competition from local companies like Abudhabi Vegetable Oil Co. LLC. The company is operating in the vegetable oil market. The company is giving stiff competition to Savola. The vision of the company is to become the clear leader in the premium cooking oil sector in the region (Middle East and Africa). The mission of the company is building legacy our premium brands and modern facilities and to continually manufacture packaged edible oils with the highest of standards and quality. The target of Abudhabi Vegetable Oil Co. LLC. Is to become the premium producer of the edible oil in the market and also to satisfy the need of the customer to the great extent (LLC., 2015) .

Savola is concerned about the transparency and openness in the company and the increase in the shareholders wealth but on the other hand Abudhabi Vegetable Oil Co. LLC. wants to become the market leader in the premium edible oil in the Middle East and Africa market. The targets of both the company is not different. Savola is big brand in Middle East and Abudhabi Vegetable Oil Co. LLC wants to establish itself as the biggest brand in the edible oil market.

The vision statement of Savola shall be more towards the customer satisfaction and building new product line to meet the need of the customers.

Internal assessment:

The financial analysis is related to the assessment of the business, projects, performance and profitability of a company or firm. The basic need of financial analysis is to find the financial stability of an organisation. The financial analysis is imperative for understanding of the company and its back ground. It is imperative for the investor to find whether investing in this company is safe or not. The main focus during analysis of a company, it would be towards the Income Statement, Balance Sheet and cash flow statement of the company. The most important way of analysing the financial statement is to calculate various ratios from the figures provided in the annual report of the company (Tracy, 2012).

Current Ratio:

Liquidity ratio measures the ability of a firm to meet short term and long term obligation. The ratios are very important for the firm to measure the ability to pay the obligations otherwise lower ratios can led to bankruptcy of the firm. The higher ratios are favourable for any firm to meet the short term obligations. The ratio analysis is important for the bankers and the financial institutions measuring the ability to pay short term obligation of the firm to the banks and the financial institutions. The measurement of the liquidity ratio depends on the user of the information. There are generally two main liquidity ratios one is current ratio and another is quick ratio or acid test ratio (Jain, 2006).

The current ratio is the current ratio is the calculation of the relation of current assets with current liabilities. The higher the current ratio it becomes much better for the organisation. The higher ratio is indicative of the fact that company or the firm can meet the obligation of the firm handsomely. The formula for calculation of the Current Ratio is as following;

Current Assets

Current Liabilities

The current ratio is indicative of the fact that the company has better position I terms of current assets. The current ratio is the measurement of the company’s ability to pay short term liabilities with short term assets. The higher the ratio, the company is more quipped to pay its obligations. The formula for current ratio is Current assets/ Current Liabilities. The current ratio gives the sense of the operations and operating cycle of the company.

Return on assets:

The ratio indicates the profitability of the company against the assets of the company. The utilisation of the assets is important to increase the revenue. The efficiency of the management can be better understood, as the ratio will measure the ability of the managers to increase earning (Formulas, 2015). The formula of Return on assets is:

Annual Net Income

ROA

Average total assets

Debt to worth ratio:

The degree of leverage is calculated by the gearing ratios. The debt equity ratio shows the proper mix of debt and equity in formation of capital. The gearing ratios are difficult to compare as the gearing ratio for different industry varies. Therefore the comparison of the gearing ratio can be done among the same companies in the same industry. It is widely known that higher gearing ratio poses risk to any industry or company, as even in worst turnover figures the company have to still service the debt. The financial statements play their part in calculation and projection of the financial ability and strength of any entity or organisation. The financial statement and balance sheet is prepared on accrual basis. The statement is used to match the income and expenses received and paid in cash of any entity for any given period. The financial statements include any cash transaction. The situation for Samsung is appealable. The balance sheet figures are indicative of the fact that the company is poised to perform better in the future. The formula for calculation of debt to equity ratio is as follows:

Total Debt to outsider

Equity capital + Reserves

SL NO

Ratio Analysis

2010

2009

2008

1

Sales Growth Margin

117%

130%

133%

2

OPERATING PROFIT MARGIN

16%

17%

13%

OPERATING PROFIT REVENUE

3

NET PROFIT MARGIN

4%

5%

1%

NET PROFIT REVENUE

4

Administration and marketing expenses divided by total sales

12%

17%

11%

5

CURRENT RATIO

7/8

8/9

4/5

CURRENT ASSETS

CURRENT LIABILITIES

6

Debt to worth ratio

29%

23%

16%

TOTAL DEBT TO OUTSIDER

EQUITY CAPITAL+ RESERVES

7

ROA

5%

6%

1%

Net Income

Total assets

8

EPS

3.00

2.76

1.34

Profitability Ratio:

The profitability ratios are the indicators of the profit percentage against sales. It is the measurement of the ability to generate earnings of the company. The most of the ratios are indicative of the profitability position of the company. Some of the profitability ratio is profit margins and return on assets and return on equity. The profitability ratio are very important for the firm to show to the investors that the company has n=made profit significantly.

Business Sectors and International Presence

Source: http://www.savola.com/SavolaE/International_Presence.php

The presence of the company is needed in many other countries including emerging market economies. The emerging market economies can provide them better growth opportunities. The strategies the company is taking is important for the growth but the growth will come from new product and new goods in the market. To increase the demand and to hold the leadership position in the market the company needs to increase its product portfolio.

IFE Matrix

Internal Factor Evaluation

Weight

Rating

Weighted Score

Strength

Brand value of the company is huge

0.09

4

0.36

Variety of product

0.05

3

0.15

Marketing strategy

0.07

4

0.28

Personal shopping malls and hyper market

0.08

5

0.4

Business area and the volume of business

0.06

4

0.24

Operation in Middle East and Africa

0.05

3.5

0.175

Strong Revenue

0.06

4

0.24

Strong Profit

0.05

4

0.2

Advertisement and brand value

0.04

3

0.12

Weaknesses

No new products

0.08

5

0.4

New competitors in the market

0.06

4

0.24

Price competition has increased

0.08

4

0.32

Political turmoil

0.08

5

0.4

Increased input costs

0.07

4

0.28

Debt position rising

0.08

4

0.32

TOTAL

1.00

4.125

External Assessment:

The President of UAE has signed Economic Agreement with GCC in 2002. UAE has also signed agreements to deepen its trade ties with Arab countries. Greater Arab Free Trade Area Agreement and other bilateral free trade agreements within the framework of GCC agreements are also to be signed with Syria, Lebanon, Iraq, Morocco and Jordan (www.abudhabi.ae, 2015). UAE is one of the member country of WTO. Beyond GCC the country has entered into trade agreement with many countries. The country has also signed trade agreement with major economies of the world. The UAE is the federal monarchy. By far Saudi Arabia is the largest Gulf countries with strong economy and the largest exporter of Oil. The UAE is the second largest economy in the Gulf region after Saudi Arabia (dubaifaqs.com, 2015). The country has exposure of the country has in many fields. Information collected from various source would help understanding the external environment and its effect on the business houses like Savola. The UAE is the second largest economy in the Gulf region after Saudi Arabia (dubaifaqs.com, 2015). If we go by the infrastructural and economical point of view UAE is way ahead of Saudi Arabia. Saudi Arabia is completely dependent on exporting of oil. The UAE has managed to diversify its income. The 70% of the contribution in GDP of UAE economy is coming from service sector. The UAE economy has made the impossible possible. The country has managed to diversify the economy of the country to the large extent. The infrastructure development is the pre requisite for growth. The infrastructural growth is important for setting up new business and to take the growth to a new trajectory. The GDP figure of UAE is indicating that after 2008 crisis the economy has moved on (Bank, 2015). The GDP growth figure for last five years were 1.6 for 2010, 4.9 for 2011, 4.7 for 2012 and 5.2 for 2013. Dubai has transformed in to world class destination in terms of business and tourist destination.

External Factor Evaluation Matrix

Weight

Rating

Weighted Score

Opportunities

Higher revenue

0.08

4

0.32

Increasing presence

0.05

3

0.15

Aggressive marketing

0.05

4

0.2

New Markets in the GCC countries and Africa

0.06

5

0.3

Largest Operating country in terms of sales in many countries

0.06

4

0.24

Increasing presence in small towns

0.05

4.5

0.225

Increasing product quality and margins

0.06

3.2

0.192

Lower competitor in different markets

0.05

4

0.2

Expecting biggest investment from Middle East

0.04

3

0.12

Africa Potential market

0

0

Threats

0.05

5

0.25

Indian and Chinese companies

0.04

4

0.16

Competitive pricing of the products

0.05

4

0.2

Depleting market share

0.04

5

0.2

Aggressive marketing strategies by competitors

0.06

4

0.24

Aggressive PR my the competitor

0.06

4

0.24

Discounted price by the competitor

0.04

2.5

0.1

No presence in emerging markets

0.03

4.5

0.135

Lower product portfolio

0.05

4

0.2

Increasing debt

0.04

3

0.12

Political turmoil

0.04

6

0.24

Total

1.00

4.032

Strategy Formulation:

Porter’s Five Pint Forces:

The manufacturing industry creates value by changing the inputs for the product. This is one of the most important fundamental for a company that establishes the fact that on which the company will stand. In case of manufacturing companies, the emphasis is always will be on the raw materials that will create value of the product. Inbound Logistics:

This is all about the process of receiving, storing and distribution of inputs internally. The buyer and supplier relationship is important for cre3ating value chain for manufacturing industries.

Operations:

The manufacturing process is used to transform the raw material to the finished goods. The process of transforming the product is part of operation process. Outbound Logistics:

The outbound logistics is all about the delivery of the products to the end customers. The customers get the product from the market.

Marketing and Sales:

The process includes persuading customers. The persuasion is the challenging job for the market department.

SWOT:

Strengths

Weaknesses

1. Good market share

1. The quality of the products

2. Growing Sales and Market share

2. No Vertical Integration

3. Creation of New Value Chain

3. Depending on the food Product

4. Presence in Emerging markets

Opportunities

Threats

1. New Marketing Strategy

1. Competition

2. Growth in Smartphone Market

2. Strong Position of the Competitors

3. Investment in New R&D Division

4. New Market in Middle East and Africa

BCG Model:

The classification depends on market growth, market share compared to large competitors. The classifications indicated the increase in market share increase the cash generation. There is second assumption according to this matrix that the growth depends on the investment and the investment is related to consumption of cash. The company is expecting that the market for food business will grow to SR35 billion. The company is riding on normal growth rate. The situation of the company cannot be compared with Cash cows.

SPACE:

References:

Bank, T. W. (2015, 04 28). GDP growth (annual %). Retrieved from http://data.worldbank.org/: http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG

dubaifaqs.com. (2015, 05 13). List of GCC countries and nations. Retrieved from http://www.dubaifaqs.com/: http://www.dubaifaqs.com/list-of-gcc-countries.php

Formulas, F. (2015, 04 22). Finance Formulas. Retrieved from Finance Formulas: http://www.financeformulas.net/Days-in-Inventory.html

Group, S. (2015, 05 26). About the Savola Group. Retrieved from http://www.savola.com/: http://www.savola.com/SavolaE/About_The_Savola_Group.php

Group, S. (2015, 05 26). Mission . Retrieved from http://www.savola.com/: http://www.savola.com/SavolaE/Mission.php

Jain, K. &. (2006). Management Accounting; https://books.google.co.in/books?id=Es37CPpEItwC&pg=SA6-PA2&dq=ratio+analysis&hl=en&sa=X&ei=lTDCVPHPGczj8AXtwoDwCg&ved=0CDYQ6AEwAjgK#v=onepage&q=ratio analysis&f=false. New Delhi: Tata McGraw-Hill Education.

LLC., A. V. (2015, 05 26). Vision & Mission. Retrieved from http://www.advocuae.com: http://www.advocuae.com/aboutus/vision-mission/

Stengel, D. N. (2011). Managerial Economics: Concepts and Principles;https://books.google.co.in/books?id=ot7FFc2JUBYC&dq=managerial+economics&source=gbs_navlinks_s. New york: Business Expert Press.

Tracy, A. (2012). Ratio Analysis Fundamentals: How 17 Financial Ratios Can Allow You to Analyse Any Business on the Planet; https://books.google.co.in/books?id=GadRYnALi-oC&printsec=frontcover&dq=ratio+analysis&hl=en&sa=X&ei=3y_CVORkjOjwBYLjgMgD&ved=0CDUQ6AEwAg#v=onepage& . London: RatioAnalysis.net.

www.abudhabi.ae. (2015, 05 26). Free Trade Agreements of the UAE. Retrieved from www.abudhabi.ae: https://www.abudhabi.ae/portal/public/en/business/international_trade/import_and_export/gen_info92?docName=ADEGP_DF_162968_EN&_adf.ctrl-state=90sx1yk4x_4&_afrLoop=1471836418238393

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