Quice Food Industries Limited

Quice Food Industries Limited (PSX: QUICE) was incorporated in Pakistan as a private limited company in 1990. The company’s status was changed into a public limited company in 1993. The company is principally engaged in the manufacturing and sale of jam, jelly, syrups, pickles, essences, custard powder, juices and aerated drinks as well as other related products. Besides catering to local market, the company has its exports business in USA, Canada, UAE, South Africa, East Africa, UK and Australia.

Pattern of Shareholding

As of June 30, 2022, QUICE has 98.462 million shares outstanding which are held by 4894 shareholders. General public, with a stake of 61.05 percent in the company forms the largest shareholder category. This is followed by sponsors and their family members holding 31.877 percent shares of QUICE. Modarba and Mutual Funds account for 5.126 percent shares of the company while financial institutions hold 1.83 percent shares. The remaining shares are held by other categories of shareholders, each holding less than 1 percent shares of the company.

Performance Trail (2018-22)

Except for a marginal dip in 2019, the topline of QUICE has been growing in all the years under consideration. Conversely, its bottomline is unable to post net profit in a single year. Not just that, the company has never posted a positive bottomline after 2015. Even the company is unable to make operating profit since 2015.The only happy sight is that the GP margin of the company has started improving since 2021 to clock in at 11 percent in 2022 versus 7 percent in 2020. A sneak into the financial statements will provide a clue of what erodes the company’s profits.

In 2019, QUICE’s topline registered a year-on-year drop of 8 percent owing to overall economic slowdown. Not only did the local sales of the company post a slump, export sales also nosedived during the period. While the increase in commodity prices, devaluation of Pak Rupee, energy prices and imposition of water charge could’ve pressured the company’s margins, low volumetric sales resulted in a drop in cost of sales. Eventually, the company was able to post a GP margin of 10 percent in 2019, up from 7 percent in 2018 with gross profit posting a year-on-year rise of 30 percent in 2019. Distribution cost dropped due to a massive drop in advertisement expense. However, admin and other expense didn’t give any breather, thanks to the inflationary pressure. Other expense mainly arose because of re-measurement loss on investment and deficit on the revaluation of building. While other income rose by 25 percent year-on-year on the back of investment income and profit on savings accounts, it’s yet too small in absolute terms to create any impact on the bottomline. Finance cost of the company is negligible and comprises of bank charges only. The bottomline posted a net loss of Rs.37.38 million in 2019, signifying a drop of 7 percent from the net loss made by the company in the previous year. Loss per share for the year clocked in at Rs.0.38 versus Rs.0.439 in 2018.

In 2020, the topline grew by 60 percent year-on-year mainly on the back of company’s increased focus on export sales. While local sales boasted a year-on-year increase of 32 percent in 2020, export sales multiplied by 6 times with main focus on UK, South Africa and Mauritius region. High cost of sales due to staggering rise in the commodity prices coupled with Pak Rupee devaluation magnified the cost of sales, resulting in a drop in GP margin to 7 percent in 2020. Gross profit, however, managed to increase by 13 percent during the year. A huge 31 percent year-on-year rise in distribution cost came on the back of massive marketing expenses and outward freight and handling charges. While admin and other expense plunged during 2020, the company was still not able to make operating profit which clocked in at Rs. 38.69 million. The favorable movement of other income and an unfavorable movement of finance cost could produce a negligible impact on the bottomline which posted a net loss worth Rs.39.44 million in 2020. Loss per share stood at Rs. 0.401 in 2020.

The magnitude of net loss has been slowing down since 2021 with GP margin also showing signs of improvement. In 2021, topline grew by 27 percent year-on-year mainly on the back of historic 62 percent growth in the syrup segment of the company owing to its induction in the modern trade markets. The cost of sales grew by 25 percent year-on-year, however, with the rising export sales, the company is able to earn high margin owing to devaluation of Pak Rupee. The GP margin improved to 8.5 percent in 2021. The company was able to keep a check on its operating expenses which enabled it to lower its operating loss by 27 percent year-on-year. Other income also boasted a tremendous 73 percent year-on-year growth mainly on the back of re-measurement gain on investment as well as capital gain. Finance cost dropped by 37 percent year-on-year in 2021. The net loss of the company stood at Rs.29.37 million in 2021 signifying a 26 percent year-on-year improvement over previous year. Loss per share clocked in at Rs.0.298 in 2021.

2022 witnessed a stunning 124 percent growth in the topline of QUICE. The export sales of the company rose by 150 percent year-on-year in 2022. Local sales almost doubled during the year. The highest ever inflation experienced by the country during the year took its toll on the cost of sales which multiplied by 118 percent in 2022, yet better off-take and improved pricing enabled QUICE to post a GP margin of 11 percent in 2022. Operating expenses grew relentlessly in 2022 owing to inflationary pressure which drove up the salaries and wages expense. Moreover, outward freight and handling expense, distribution claim, marketing expense etc also played their due role in pumping the operating expense up in 2022. The operating loss clocked in at Rs. 18.71 million in 2022, showing an improvement of 34 percent over last year. Other income dropped by 69 percent in 2022 as company made investment income, capital gain and re-measurement gain on investment in 2021 which wasn’t there in 2022. The net loss stood at Rs.24 million in 2022 with a loss per share of Rs.0.244.

Recent Performance (1HFY23)

As the company explored new destinations of local and export sales, the volumetric sales of the company kept rising which together with price increase created a growth impact of 89 percent in the topline of the company. However, hyperinflationary economic backdrop and widened gap between Pak Rupee and US Dollar raised the cost of sales by 76 percent year-on-year. QUICE was still able to attain a 190 percent year-on-year growth in gross profit with GP margin clocking in at 17 percent in 1HFY23, up from 11 percent during the same period last year. Operating expense posted an enormous rise owing to inflation as well as rise in outward freight and handling, advertising and marketing expense etc. This magnified the operating loss of the company by 85 percent to clock in at Rs.14.15 million in 1HFY23. Other income more than doubled during the period, however, couldn’t aid the bottomline which posted a net loss of Rs.16.36 million in 1HFY23, up from Rs.8.99 million in 1HFY22. Loss per share stood at Rs. 0.166 in 1HFY23 versus Rs.0.09 during the same period last year.

Future Outlook

As the company embarks on its journey to tap new geographical markets and new product lines, the topline is expected to follow a growth trajectory. Lately, the company is also able to improve its margins through cost controls on the basis of better relationship with the suppliers and better pricing strategy. However, soaring operating expenses erode company’s profitability impeding it to make a net profit for eight years in a row. The magnitude of net loss which lowered in 2021 and 2022 rose again in 1HFY23. The future will tell us how the company controls its cost and operating expenses to pull its bottomline from the red zone.