Nestle Pakistan Limited (NESTLE), formerly known as Nestle Milkpak Limited, is among the major FMCG companies of Pakistan. It is a subsidiary of Swiss multi-national nutritional company Nestle S.A, which had first acquired shares in Milkpak Ltd in 1988. Now, Nestle Pakistan is a publicly traded company and listed at KSE and LSE.
The company is engaged in the manufacturing, processing and marketing of food products including dairy, confectionery, infant nutrition & culinary products, coffee, beverage and drinking water. Nestle has multiple brands under its belt that have become household names in Pakistan such as MilkPack, Everyday, Nestle Pure Life and Nescafe among others.
RECENT FINANCIAL PERFORMANCE:
CY12: Nestle Pakistan has given quite unexpected and mixed results over the years. Nevertheless, the company has had a firm grip on the market. In CY12, it posted a bottom line growth of nearly 26 percent year-on-year. The main reason behind the firm's impressive performance was its volumetric sales growth. During CY12 Nestlé's top line clocked in Rs 79 billion, which was a 22 percent increase over CY11. Export sales during this period also recorded a healthy growth of 15 percent year-on-year. This strong growth in both revenue and profit kept the Nestle Pakistan market leader during the period.
However, CY12 also brought higher competition for Nestle, specifically in the dairy sector from Engro Foods. During this period, EFOODS also started to become a series player in the market, and was able to secure the market share of 51 percent in 2012, compared to 44 percent in 2011 across the ambient UHT milk segment.
In terms of margins, the company showed an encouraging increase of 140 basis points in its gross profit margin, which rose from 25.8 percent to 27.2 percent in year-on-year comparison. On the other hand, the company also reported the higher cost of distribution and logistics.
During the year, the company increased its investment in capacity enhancement projects and improvements in its infrastructure, which led the company to spend Rs 14.4 billion. These types of supplemental funding resulted in higher financial cost during the period.
CY13: Nestle Pakistan started 1QCY13 in a slow mode. In first quarter, the company's sales grew only 1.2 percent, which was the lowest quarterly top line sale growth since CY10. Although despite the flat 1Q sales, the firm's profits shot up by 14 percent year-on-year. Nevertheless, towards the end of nine months, the top line grew by 6 percent to nearly Rs 69 billion. In terms of annual results, Nestle performed marginally better in CY13. The company reported turnover growth of 9 percent year-on-year with the gross margins improving by 100 bps. The full year bottom line remained largely unchanged over last year at Rs 5.8 billion.
CY14: CY14 saw Nestle growing from strength to strength. The firm reported a revenue rise of 12 percent to Rs 96 billion compares to Rs 86 billion in CY13. The bottom line rose even sharper: 35 percent to Rs 7.9 billion from Rs 5.8 billion in the year ago.
Nestle's top line growth in CY14 was mainly volume-driven growth in CY14, However, the gross margins stayed almost flat which is the signal that the company was unable to pass the price increase completely to the consumer. The 35 percent increase in net profits was predominantly caused by the appreciation in the rupee, which increased its other income.
In CY14, the company kept investing in its infrastructure improvement, brand building. During CY14, Nestle included a host of new products in its existed long line of consumer products.
1QCY15: The first quarter of 2015 entered with a bang for FMCG sector in Pakistan. In 1QCY15, Nestle has seen 6 percent growth in its top line year-on-year. Although 1QCY15 saw nominal increase in volumetric growth, the company saw massive increase in its profitability margins during this period. This was most certainly due to internationally decline in commodity prices that led to decreases in milk procurement prices both globally and domestically, historic decrease in dry milk prices, and low fuel cost.
The other income of Nestle decreased substantially, which can be attributed to the movement in currency during the first quarter. The exchange gain on foreign-currency loan, which played a vital role in CY14, did not contribute this time around.
Outlook: The federal budget is around the corner and newspapers are abuzz with 100 percent duty on the import of dry milk. The current duty is 20 percent on import from SAARC countries and 25 percent duty for imports from other parts of the world. Similarly, there is a fear that the zero-rating tax regime in the fiscal year 2015-16 would be removed by the government. If the proposal is implemented, it will eat the margins of dairy players like Nestle and the price of packaged milk is feared to be increased by at least Rs 6 per liter as the cost of production for dairy processing industry will rise by 7 percent.
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Nestle Pakistan LTD
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Rs (mn) 1QCY14 1QCY15 chg
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Sales - net 24,004 25,344 6%
Cost of goods sold 16,923 15,804 -7%
Gross profit 7,080 9,540 35%
Distribution and selling expenses 2,730 2,891 6%
Administrative expenses 554 599 8%
Other operating expenses 366 448 23%
Other operating income 502 54 -89%
Operating profit 3,797 6,050 59%
Finance cost 583 433 -26%
Profit before taxation 3,349 5,223 56%
Taxation 1,271 1,549 22%
Profit after taxation 2,079 3,674 77%
Earnings per share 45.83 81.01
Gross profit margin 29% 38% up 900bps
Net profit margin 9% 14% up 500 bps
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Source: Company accounts
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