EFOODS amputates loss-making arm

One of the major food groups of Pakistan, Engro foods (KSE: EFOODS), had a major announcement last week. Its company secretary announced that, “Engro Foods Netherlands B.V., fully owned subsidiary of Engro Foods has entered into a share purchase agreement for the sale of its North American Business which includes Engro Foods Canada Limited.”
As a result, EFOODS closed down 5 percent on its corresponding lower price limit after the announcement of its exodus from its Canadian-based meat business. The transaction shall complete around 31st October, 2014. The management is mum about the value of the business undergoing sale.
In May 2011, Engro Corporation had acquired Al-Safa Halal, a halal meat processing company of Engro Foods Canada and its subsidiary Engro Foods USA, LLC. The brand existed for over 10 years before it was acquired by Engro. It has more than five food categories (fresh, savory solutions, snacks, kebabs, flatbreads, & rice).
This was a one-of-a-kind offshore venture ever embarked by a Pakistani company in the $632 billion global food industry. However, it posted a loss after tax of Canadian $313,000 right after the acquisition. Moreover, the business was reportedly surrounded by the controversy of its Halal certification being expired since 1999, which affected its brand equity in leading retail stores in Canada and North America. Recently, Engro Foods Canada pronounced a loss of Canadian $670,000 in 1HY2014.
According to the notice, EFOODS anticipates pretax loss of Rs475 million in 9MFY14. Several industry analysts are of the view that this is a long-term positive as Al-Safa was a loss-making entity and now EFOODS’s future earnings might improve.
This decision comes at the time when the economic situation in Pakistan is tight and global markets remain competitive. So now EFOODS can focus on its core dairy prospects in Pakistan.
It is said that it gets worse before it gets better. So, while the firm’s performance was muted in the latest half-year period, it appears to be better positioned to do well in the next quarter.