Mitchells Fruit Farms Limited

Mitchells Fruit Farms Limited (PSX: MFFL) was first set up in 1933 where it was registered in Okara. Later, it was renamed to Mitchells Fruit Farms. In 1993 it went public, whereas it got listed three years later. The company manufactures and sells farm and confectionery products.

Shareholding pattern

As at June 30, 2021, 59 percent shares are held by the directors, CEO, their spouses and minor children. Within this category, nearly 20 percent shares are owned by each of the following: Mr. Syed Mohammad Mehdi Mohsin, Ms. Syeda Matanat Mohsin and Ms. Syeda Maimanat Mohsin. The local general public has 27 percent shares, while the remaining 14 percent shares are with the rest of the shareholder categories.

Historical operational performance

The company has mostly seen a growing topline in the last six years. Profit margins, on the other hand, dipped in MY18, before rising again and remaining stable until FY21. The company also changed its year end to June, therefore FY21 shows results of nine-month period from October 2020 to June 2021.

In MY18, revenue contracted by an all-time high of 14 percent. Export sales reduced by 33 percent. This was attributed to trademark infringements. Local sales also witnessed a decline, of 10.4 percent. This was despite a significant investment in expansion of its distribution network. With no corresponding rise in revenue, this brought available resources under pressure and contracted the working capital. Thus, gross margin declined to 15.5 percent, from last year’s 23.7 percent. With further expenses incurred, the company posted the highest net loss of Rs 292 million.

Topline bounced back in MY19 as it registered a growth of 22 percent, reaching nearly Rs 2 billion in value terms. This was attributed to significant growth in the B2B channel. Export sales also recovered as it grew by 48 percent. The improvement in topline reflected in the gross margin that increased to 21.8 percent for the year. To reduce losses, the company attempted to curtail fixed costs, particularly on the distribution and marketing side. This resulted in an operating profit of Rs 26 million versus an operating loss of Rs 268 million in MY18. But due to rising KIBOR rates, finance expense increased, resulting in a net loss of Rs 80 million for the year.

In MY20, considering the financial position of the company, the directors opted for a rights issue of Rs 750 million underwritten by three sponsors that together owned 58 percent of the shares. Revenue growth in MY20 stood at over 6 percent, crossing Rs 2 billion in value terms. Export sales depicted a growth of 16 percent, while local sales grew by 4.4 percent. With a marginal change in cost of production, gross margin remained close to 21 percent, while net loss reduced to Rs 56 million for the year.

The results of FY21 are for the nine-month period starting in October 2020. Revenue increased by 4.7 percent with export sales exhibiting a growth of nearly 7 percent and local sales by 4.2 percent. This was attributed to an improvement in sales volumes. Gross margin also improved to over 22 percent as the company achieved cost economies in variable and fixed costs. The issuance of rights shares also improved the working capital. Thus, finance expense also reduced considerably. This was reflected in a net profit of Rs 11 million recorded for the year. The company had been witnessing losses since MY16.

Quarterly results and future outlook

Revenue in the first quarter of FY22 was higher by 11 percent year on year. However, profitability was lower in 1QFY22 due to rising cost of inputs such as raw material, packing material, cost of labour and power. The company did not raise its product prices in accordance, therefore, gross margin stood at 10.4 percent versus 19 percent in 1QFY21. Similarly, net loss was also higher at Rs 96 million compared to Rs 24.4 million in 1QFY21.

In the second quarter, revenue was higher slightly by 4.3 percent year on year. However, profitability continued to decline due to rising input prices while global supply chain issues also created an adverse impact. In order to streamline operations, the company, during the period, discontinued dairy operations and sold livestock to remain focused on its core business. Despite these attempts, loss increased to Rs 34 million versus a net profit of Rs 22.6 million in the same period last year.

The third quarter of FY22 saw lower revenue year on year, by almost 14 percent. Due to cash flow crunch the company has been unable to procure raw materials timely. For instance, the south crop of tomato was delayed that forced the company to procure paste but due to cash crunch it could not purchase in bulk that also affected production. Moreover, with little support from other income, net loss was recorded at Rs 62.5 million versus a profit of Rs 20 million in 3QFY21.The company expects improvement in demand in the last quarter on the back of the month of Ramadan. It is also undertaking capacity enhancement and optimizing engineering to reduce production breakdowns.