Mitchells Fruit Farms Limited

Mitchells Fruit Farms Limited’s (PSXL MFFL) history dates back to the pre-partition era, when the first farm was bought in Okara and registered in 1933. After the partition of the sub-continent, it was renamed to Mitchells Fruit Farms Limited. It went public in 1993 while the listing did not happen until three years later.

The company manufactures and sells farm and confectionery products.

Shareholding pattern

As at September 30, 2020, over 57 percent of the shares are held by the directors, CEO, their spouses and minor children. Within this category, Syed Mohammad Mehdi Mohsin, an executive director, holds nearly 35 percent of total shares. The associated companies, undertakings and related parties own over 10 percent of the shares; of this over 9 percent of the shares are with CDC-Trustee National Investment (Unit) Trust (CDC). The local general public owns nearly 27 percent while the remaining 5 percent shares are with the rest of the shareholder categories.

Historical operational performance

The topline of Mitchells has been fluctuating over the years, while profit margins remained relatively stable until MY17, after which they dipped before rising again in MY19.

After contracting consecutively for three years, sales revenue for the company improved during M17 by nearly 13 percent. This was attributed to a volumetric increase in sales of grocery and confectionery categories by 10 and 6 percent. Squashes and syrups collectively were largely responsible for improvement in sales of groceries category, while chocolates drove the sales in the confectionery category. Moreover, export sales witnessed 14 percent growth in revenue, primarily from the ready-to-eat category. Despite this, gross margins remained more or less flat around 23.7 percent, while the loss for the year escalated to Rs 31 million due to rise in distribution expense. The latter was due to salaries, distributors and rent, rate and taxes expense.

In MY18, Mitchells Fruit Farms invested significantly to expand its distribution network. However, this did not result in a higher topline for the company, that reduced by 14 percent. This put pressure on available resources and contraction of working capital. Export sales also saw a decline by 33 percent, due to trademark infringements. Therefore, gross margin fell to 15.5 percent, from 23.7 percent the year before. On the other hand, cost of production as well as distribution and administrative expenses further climbed up to consume 84, 25 and 8 percent, respectively. Thus, the company posted its highest loss seen at Rs 292 million.

Mitchells Fruit Farms saw recovery in its topline that grew by 22 percent during MY19. This was attributed to a significant growth in B2B channel that helped in raising revenue. In addition, export sales also picked up, increasing by 48 percent during the year. Moreover, increase in prices due to inflation also contributed to the topline. This helped to improve gross margin to nearly 22 percent and reduce losses to Rs 80 million for the year, compared to Rs292 million seen in the previous year. In order to curtail loss incurred, the company trimmed its fixed costs, particularly related to distribution and marketing. So, while it posted an operating profit of Rs 26 million, the increase in KIBOR caused a rise in finance expense that exceed the operating profit.

Given the financial position of the company, its board of directors opted for a rights issue of Rs 750 million in MY20 that was underwritten by three sponsors; collectively, they owned 58 percent of the shares. During MY20, the company managed to grow its topline by 6 percent. There was an over 16 percent improvement in export sales as well, while cost of production increased marginally to 79 percent of revenue, keeping gross margin close to 21 percent. With little changes in the remaining elements of the financial statements, net loss reduced to Rs 56 million.

Quarterly results and future outlook

During the first quarter of M21, revenue increased by over 33 percent year on year as the strict lockdowns in place were gradually lifted and business activities returned to some normalcy. This was largely contributed by the General Trade division. Moreover, cost of production was lower year on year at nearly 75 percent of revenue. Moreover, the revision in KIBOR as the government’s attempt to provide relief to businesses in times of the ongoing pandemic helped to improve net margin as well. The company posted a profit of Rs 23 million for the quarter as compared to a loss of Rs 15 million same period last year.

While the management has taken care of the financial side of the business, by injecting equity and making new investments to ensure quality and supply, certain external factors pose a challenge for the company such as the third wave of the Covid-19, with new variants, the resultant decline in buying power of consumers and the adverse effect of the pandemic on global trade.