Mitchells Fruit Farms Limited

Mitchells Fruit Farms Limited (PSX: MFFL) has a history that dates back to 1933. After Independence, the company’s name was changed from Indian Mildura Fruit Farms to Mitchells Fruit Farms Limited. The company went public in 1993 and was listed on the stock exchange in 1996. The principal activity of the company is manufacturing and sales of various farm and confectionary products including beverages, ketchups and sauces, preserves, read to cook and ready to eat food range etc.

Pattern of Shareholding

As of June 30, 2023, MFFL has a total of 22.875 million shares outstanding which are held by 1642 shareholders. Directors, CEO, their spouse and minor children have the highest shareholding of 61.10 percent in the company followed by local general public holding around 24 percent shares of MFFL. NIT and ICP have a stake of 9.6 percent in the company while joint stock companies account for 4.55 percent shares. The remaining shares are held by other categories of shareholders.

Performance Trail (2019-23)

The topline of MFFL has been growing since 2019; however, the bottomline posted a positive figure only in 2021. It is to be noted that MFFL’s net loss had been shrinking since 2018 and turned into net profit in 2021, however, the bottomline again entered the red zone in 2022 with the highest net loss margin. The net loss significantly reduced in 2023. The detailed performance review of the period under consideration is given below.

In 2019, the net revenue of MFFL surged by 22 percent year-on-year. This came on the back of growth in both local and export sales volumes. Moreover, the company also raised prices to pass on the effect of rising inflation. Gross profit ascended by 71.78 percent year-on-year in 2019 while GP margin climbed to 21.86 percent from 15.53 percent in 2018. Administrative expense almost stayed the same in 2019 despite inflation as the number of employees tumbled from 312 in 2018 to 279 in 2019 which pushed down the salaries expense. Marketing and distribution expense shrank by 30.71 percent year-on-year on account of lower salaries expense, advertisement and promotion budget as well as distributor expense in 2019. The cost control measures resulted in operating profit of Rs.11.19 million in 2019 as against operating loss of Rs.293.65 million in 2018. OP margin stood at a skimpy 0.56 percent in 2019. Other income dwindled by 38.81 percent year-on-year in 2019 due to lower profit on the revaluation of livestock, lower exchange gain as well as no liabilities written back in 2019. Finance cost continued to enlarge and posted 59 percent year-on-year hike on the back of higher discount rate during the year. High finance cost resulted in net loss of Rs.80 million in 2019 which was 73 percent lower than the net loss posted by MFFL in 2018. Loss per share also plunged from Rs.37.16 in 2018 to Rs.10.16 in 2019.

In 2020, the topline could only muster a marginal 6.29 percent year-on-year growth. MFFL, being classified as the producer of essential items, continued its operations amidst the outbreak of COVID-19, however, tamed demand didn’t allow the company to attain robust sales volume in 2020. The increase in the prices of essential raw materials coupled with supply chain bottlenecks due to lockdowns imposed during the year resulted in gross profit inching up by a mere 1.84 percent year-on-year in 2020 with GP margin shrinking to 20.94 percent. Administrative expenses expanded by 11.4 percent year-on-year in 2020 due to advisory cost incurred for undertaking an investment plan. Human resource headcount further fell down to 253 in 2020. Distribution expense ticked down by 10.26 percent due to lower sales volume and lower advertising & promotion budget allocated for the year. Operating profit magnified by 211.58 percent in 2020 with a slight improvement of 100 bps in the OP margin to clock in at 1.65 percent. Other income nosedived by 22 percent in 2020 mainly due to lesser scrap sales as well as no profit on the sale of fixed assets during the year. Finance cost fell by 5.14 percent year-on-year despite the fact that discount rate was high for the most of the part of fiscal year 2020. This was the result of lower bank borrowings during 2020. However, gearing ratio jumped up from 86 percent in 2019 to 91 percent in 2020 due to decline in total equity on account of un-appropriated loss. MFFL posted net loss of Rs.55.44 million in 2020 which was 30.7 percent lesser than the net loss registered in 2019. Loss per share inched down to Rs.7.04 in 2020.

In 2021, MFFL’s topline expanded by 4.65 percent year-on-year on the back of increased sales volumes and decreased sales returns during the year. Cost economies achieved during the year enabled MFFL to pull off 10.6 percent year-on-year growth in the gross profit while GP margin also slightly ticked up to 22.14 percent in 2021. The company was able to squeeze its administrative cost by 9 percent year-on-year in 2021; however, fourfold growth in advertisement expense pushed distribution expense up by 22.16 percent year-on-year during 2021. Other expense also surged by 168.76 percent in 2021 on the back of increased provisioning for WWF and WPPF. Exchange loss as well as loss on disposal of biological assets also spiked in 2022. Despite tremendous growth, other expense stood at around 0.4 percent of MFFL’s net sales in 2022. Operating profit tumbled by 7.29 percent in 2021 with OP margin of 1.46 percent. What gave an incredible support to bottomline was 65.49 percent year-on-year decline in finance cost in 2021. This was on the back of downward revision in discount rate coupled with a massive reduction in borrowings as the company injected fresh equity of Rs.750 million through issuance of right shares which enabled it to meet its working capital requirements and pay off its outstanding debt. This resulted in a massive decline in gearing ratio which clocked in at 25 percent in 2021. Other income also magnified by 188.69 percent in 2021 on the back of hefty scrap sales, higher profit recorded on revaluation of livestock as well as greater income on bank deposits. MFFL boasted net profit of Rs.10.47 million in 2021 with NP margin of 0.47 percent. EPS clocked in at Rs.0.49 in 2021. This was the first time after 2015 that MFFL posted net profit.

In 2022, the sales revenue of MFFL grew by 12.61 percent. Global increase in the prices of commodities, Pak Rupee depreciation, higher energy cost as well as devastating floods which affected the timely procurement of raw materials inflated the cost of sales by 33.36 percent in 2022.Gross profit went down by 60.39 percent in 2022 while GP margin drastically fell to 7.79 percent. Massive increase in salaries and wages, advertisement expense, freight expense etc resulted in 66.28 percent and 76.30 percent rise in administrative expense and marketing expense respectively in 2022. This resulted in operating loss of Rs.597.19 million in 2022. Other income grew by 36.7 percent in 2022 mainly on account of exchange gain. However, other income was greatly offset by 44.28 percent higher finance cost incurred by MFFL in 2022. Higher finance cost was the result of multiple raises in discount rate during the year. Massive decline in MFFL’s equity due to hefty un-appropriated loss resulted in gearing ratio of 74 percent in 2022. The company posted net loss of Rs.621.97 million in 2022 with loss per share of Rs.27.19.

In 2023, the topline of MFFL grew by 9.47 percent year-on-year. During the year, the company focused on its profitable businesses rather than increasing its sales volume. Reduced sales volume also resulted in massive decline in raw & packing materials, boiler expense, dairy expense as well as repair & maintenance charges incurred during the year. Sales mix revision and cost reduction allowed the company to improve its gross profit by 234.39 percent year-on-year in 2023 while GP margin climbed to its highest ever level of 23.78 percent. Significant reduction in freight and advertising expense pushed distribution expense down by 18.56 percent year-on-year in 2023. Administrative expense also went down by 17.59 percent in 2023 due to lower payroll expense as headcount was reduced from 292 employees in 2022 to 284 employees in 2023. Greater provisioning against doubtful debts as well as receivable balances written off during the year resulted in 278.77 percent spike in operating expense which clocked in at Rs.63.95 in 2023. Operating loss shrank by 91.88 percent in 2023 to clock in at Rs.48.52 million. Other income grew by 124.37 percent in 2023 primarily on the back of excess accrued liabilities written back during the year. High cost of borrowing resulted in 130 percent rise in finance cost. Gearing ratio went up to 81 percent in 2023 mainly due to shrinkage in total equity on account of higher accumulated losses. MFFL’s net loss shrank by 90.48 percent in 2023 to clock in at Rs.59.198 million with loss per share of Rs.2.59.

Recent Performance (9MFY24)

MFFL’s net sales inched up by 2.33 percent during 9MFY24. This was on account of improved export sales. Cost of sales slid by 2.24 percent during the period on account of improved operational efficiency and cost optimization measures put in place by the company. Gross profit enhanced by 15.51 percent during 9MFY24 with GP margin clocking in at 29 percent versus GP margin of 25.75 percent recorded during the same period last year. Administrative expense shrank by 2.10 percent during the period supposedly due to lower payroll expense as until 2023 the company was streamlining its workforce. Distribution expense plunged by 30 percent during 9MFY24 due to lower advertising expense, selling charges as well as salaries expense. Other expense plummeted by 80.85 percent during the period supposedly on account of high-base effect as the company wrote off receivable balances during last year. MFFL posted operating profit of Rs.215.82 million during 9MFY24 versus operating loss of Rs. 32.84 million recorded in 9MFY23. Other income dwindled by 65.45 percent during 9MFY24. This also appears to be due to high-base effect as MFFL wrote back excess liabilities during last year. Finance cost surged by 40.91 percent during 9MFY24 due to elevated discount rate and increased borrowings. The company posted net profit of Rs.140 million in 9MFY24 versus net loss of Rs.25.16 million posted during 9MFY23. MFFL posted the highest ever EPS of Rs.6.12 versus loss per share of Rs.1.10 registered during the same period last year. NP margin stood at 6.67 percent during 9MFY24.

Future Outlook

Sales mix optimization, export emphasis and cost saving measures saved the day for MFFL during 2024. The company will continue to bank on these strategies to drive profitability in the coming quarters. Ongoing war in the Gulf region has considerably increased the shipment time for vessels. This can impede the company in the timely completion of its export orders.