Mitchell's Fruit Farms Limited

Mitchell's Fruit Farms Limited was originally established to grow grapes and then eventually sell it as dried raisins by Frances J.Mitchell of Scotland. It was incorporated in 1933 as Indian Mildura Fruit Farms Ltd with 740 acres of agricultural land in the town of Montgomery now known as Renala Khurd in District Okara, Punjab. After the independence in 1947, company's name was changed to "MITCHELL'S Fruit Farms Limited" with the brand name of "MITCHELL'S".
Mitchell's has a privilege to be the oldest corporation of Pakistan with an extensive history. Since it has its own farms, it is fully integrated company and has 21 percent of market share in Jam and spread sector. In recent years Mitchell's has become a serious player in the export sector with export portfolios in Middle-East, South-West Asia, Europe and North America.
The company has divided its product line into two categories: Grocery products and confectionary products. Grocery range includes jam & jellies, squashes & syrups, ketchups and sauces, canned food, fruit drinks, pickles and vinegar, and bottled water. This range includes a good number of 108 products. The confectionery product range includes a total of 32 products and offers two broad ranges of products, one being chocolates and the other being sugar confectionery.
It is worth mentioning here that Mitchell's Fruit Farms Limited was Pakistan's first company to get accredited by ISO 9001 in 1998. This accreditation has opened many opportunities for Mitchell's both at export front and in domestic market as well. Company's client base includes big names such as Pakistan International Airlines (PIA), Canteen Stores Department, Utility store of Pakistan and other prominent entities in the country.
Financial Performance:
Mitchell's Fruit Farms Limited is a midsize company. It has taken two very important steps to make sure that company can hold on to its grounds in the long run. First of all, Mitchell's has discontinued the production of its low-margin products, specifically low price confectionery items in the first quarter of FY14. Secondly, Mitchell's has been able to complete its two major investments in Fruit Pulping Line and Coal fired boiler.
The company has seen a decline in its top line of 7 percent year-on-year in 2014, having said that Mitchell's has also seen a 1 percentage point improvement in its gross margin. Gross margin is consistent since FY10 due to Mitchell's improved operational performance. The decline of sale seems to be the aftermath of ceasing the manufacturing of its confectionery items.
However, improvement in gross- margin is a significant proof that the company's decision of discontinuing its high-volume low price market segment was correct. In the long run, one can expect that these adverse affects of discontinuation of low price point market segment will change because Mitchell's is aiming to focus on its high-margin brands only.
Mitchell's has improved its performance drastically over the last five years. Net margins have improved to 600 bps and gross margin has come up by 200 bps. It is worth mentioning here that major chunk of Mitchell's sales (around 88 percent) comes from the domestic market, but exports have also increased from 8 percent in FY 13 to almost 12 percent in FY14.
Similarly, Mitchell's has seen a significant increase in its fixed or long-term assets this is attributed to their installment of new pulping line and coal fired boiler. Hence, this installation can also help us to understand the higher finance cost for FY14. Long term liabilities have seen a significant increase because of the long term finance portion of the investment in new equipments.
KSE vs. Mitchell's Fruit Farms Limited:
Mitchell's has been listed at Karachi Stock Exchange with market capitalization around Rs5.6 billion and 36 percent free float. But, the performance of Mitchell's stock is uninspiring on the local bourse.
Future expectations:
Mitchell's future seems bright and expectations are high since they are trying to focus on their core business and getting away from their low-margin products. This along with new investment in coal operated equipment will help them to reduce higher energy cost in future production. Having said that, Mitchell's is currently showing a negative cash flow since FY12, but its EBDTA to debt ratio is very strong, and it also enjoys close relationship with its creditors.

======================================================================

MITCHELL'S PROFIT & LOSS ACCOUNT

======================================================================

Rs (mn)                    2010    2011    2012    2013    2014    chg

======================================================================

Net Sales                 1,377   1,794   1,884   2,084   1,945    -7%

Cost of Sales             1,073   1,400   1,421   1,546   1,424    -8%

Gross Profit                304     394     463     538     521    -3%

Admin expenses               61      67      84      83      95    15%

Selling & Distribution      136     183     207     248     276    11%

Other Operating Expenses      7       8      12      14       9   -33%

Other Operating Income        7      11      16      12      17    43%

Financial Expenses           38      38      23      18      39   114%

Profit before tax            69     109     153     187     119   -36%

Taxation                     23      35      44      54      12   -78%

Profit after Taxation        46      74     109     133     107   -19%

----------------------------------------------------------------------

Source: Company accounts

======================================================================