Shezan International Limited (PSX: SHEZ) is a public limited company incorporated in Pakistan. SHEZ started its operations in 1964. The principal activity of the company is the manufacturing, trade, and sale of juices, jams, pickles, ketchup, etc. which are based upon or derived from fruits and vegetables.

Pattern of Shareholding

As of June 30, 2024, SHEZ has a total of 9.663 million shares outstanding which are held by 955 shareholders. The local general public has the highest stake of 48.5 percent in the company followed by its directors, CEO, their spouse, and minor children collectively holding 25.3 percent shares. Around 19.93 percent of shares of the company are held by NIT & ICP while pension funds account for 3.05 percent shares. Modarabas & Mutual funds and joint stock companies own 1.38 percent and 1.37 percent shares of SHEZ respectively. The remaining ownership is divided among other categories of shareholders.

Financial Performance (2019-24)

Since 2018, SHEZ’s topline plunged in 2020, 2021 and 2024. Conversely, its bottom line has demonstrated growth only once i.e. in 2021. In 2020 and 2024, the company posted operating and net losses. SHEZ’s margins rode a downhill journey until 2020 followed by a rebound in 2021. In 2022, gross margin posted a marginal uptick, while operating and net margins marched down. In 2023, gross and operating margins showed improvement while net margins continued to tumble. In 2024, all the margins drastically declined (see the graph of profitability ratios). The detailed performance review highlighting the underlying reasons for the ups and downs in SHEZ’s financial performance over the period under consideration is given below.

In 2019, SHEZ’s topline grew by a marginal 2.68 percent year-on-year. During the year, the food and beverages sector posted a year-on-year decline of 4.7 percent on account of escalating macroeconomic imbalances such as a hike in global commodity prices particularly POL products, elevated energy tariffs, Pak Rupee depreciation, and a high discount rate. Moreover, as a huge chunk of demand was met through imports, local players couldn’t rise. In 2019, SHEZ rebranded its juices segment with a new brand name “Happy Farms”. The company also introduced a new packing line for its 1000 ml juice segment. Among all the categories SHEZ deals in, jams and ketchups posted the highest fall in its capacity utilization which stood at 43 percent in 2019 versus 57 percent in 2018. Cost of sales spiked by 14.19 percent year-on-year in 2019 mainly on account of higher prices of sugar, pulp, raw and packaging materials, and utilities. Gross profit shrank by 27 percent year-on-year in 2019 culminating in a GP margin of 19.88 percent versus a GP margin of 27.95 percent recorded in 2018. Administrative expense inched up by 1.7 percent year-on-year in 2019, however, the curtailed advertising and promotion budget allocated for the year and streamlined freight charges on account of low sales volume pushed distribution expense down by 10.53 percent year-on-year in 2019. Net other expenses slid by 84 percent year-on-year in 2019 due to lesser product spoilage, lesser provisioning as well as higher sale of scrap. Despite keeping a check on expenses, operating profit slumped by 58.34 percent year-on-year in 2019, translating into an OP margin of 2.86 percent versus an OP margin of 7 percent recorded in 2018. Finance costs magnified by 74 percent year-on-year in 2019. This was on account of a higher discount rate coupled with long-term loans obtained during the year. This drove SHEZ’s gearing ratio from 15 percent in 2018 to 23 percent in 2019. Net profit slumped by 71.36 percent year-on-year in 2019 to clock in at Rs.113.07 million with EPS of Rs.12.87 versus EPS of Rs.44.94 posted in 2018. NP margin also ticked down from 5.26 percent in 2018 to 1.47 percent in 2019.

Followed by the skimpy sales growth of 2019, came the two years of topline slide. In 2020, SHEZ’s topline nosedived by 5 percent year-on-year. The primary reason was the country-wide lockdown on account of COVID-19 which halted the economic activity. The shutdown of the HORECA industry coupled with the closure of offices, educational institutions, recreational places malls, etc put a severe dent in the demand for the company’s products. Moreover, the imposition of 5 percent FED on juices, syrups, and squashes in the federal budget of 2019-20 further watered down SHEZ’s net sales in 2019. Despite lower sales volume and thinner net sales, the cost of sales inched up by 0.67 percent year-on-year in 2020 due to high inflation, elevated prices of raw and packaging materials as well as spiked utility charges. Gross profit further weakened by 28.22 percent year-on-year in 2020, translating into a GP margin of 15 percent in 2020. Distribution and administrative expenses were measured down by 14.89 percent and 2.6 percent respectively in 2020. This was due to a drop in employee count from 303 in 2019 to 289 in 2020 coupled with rationalized advertising and promotion outlay as well as lower freight costs due to abridged volumes. Net other expenses magnified by 112.18 percent in 2020 as SHEZ did higher provisioning for ECL and made lower scrap sales during the year. The company made an operating loss of Rs.95.68 million in 2020. The performance was further smashed by a steep 203.52 percent hike in finance costs as the company obtained a greater amount of short-term loans to meet working capital requirements in 2020. SHEZ’s gearing ratio further surged to 35 percent in 2020. The company posted a net loss of Rs.235.78 million in 2020 with a loss per share of Rs.26.84.

In 2021, SHEZ’s topline posted another 9.96 percent drop. While export sales demonstrated encouraging growth of 45 percent year-on-year in 2020 on account of robust international sales of the cooked food range, particularly juice packs, bottled juices, squashes, and ketchups mainly to the Middle East and Europe markets. However, it was offset by lackluster performance in the local market on account of the lockdown. Gross profit grew by 27.16 percent year-on-year in 2021 due to price rationalization and cost control measures implemented during the year. GP margin was recorded at 21.23 percent in 2021. Distribution and administrative expenses plummeted by 3.98 percent and 14.74 percent respectively in 2021. During 2021, the company further cut down its employee count to 270 which drove down the payroll expense. Lower traveling and conveyance charges as well as curtailed advertising and promotion expenses overshadowed the growth of freight charges due to increased international sales. Net other expenses slipped by 34.74 percent year-on-year in 2021 due to lower royalty fees paid to Shezan Services (Private) Limited. SHEZ was able to boast an operating profit of Rs.305.23 million in 2021, translating into an OP margin of 4.64 percent. Finance cost diluted by 39.94 percent year-on-year in 2021 due to a low discount rate. The gearing ratio climbed up to 37 percent in 2021. The company recorded a net profit of Rs.122.98 million in 2021, culminating in EPS of Rs.12.73 and an NP margin of 1.87 percent.

SHEZ’s topline noticeably recovered in 2022, posting a rebound of 24 percent year-on-year. The growth was largely led by the juice category which posted an encouraging rise in its turnover. During 2022, SHEZ’s Tetrapak segment produced 29.869 million dozen products, up 18 percent year-on-year. The Russian-Ukraine crisis inflated global commodity prices. This coupled with Pak Rupee depreciation proved to be a double whammy for the company in 2022. Hike in the prices of Tetrapak paper, POL products, and energy tariffs also took its toll on the company’s costs. However, changes in sales mix, higher volume, and price revisions slightly pushed the GP margin up to 21.71 percent in 2022 with a 26.87 percent rise in gross profit in absolute terms. Distribution and administrative expenses spiked by 43.26 percent and 17.67 percent respectively in 2022 due to high payroll expenses, freight charges as well as petrol, oil, and lubricant charges. Net other expense inched down by 18.24 percent year-on-year in 2022 on account of foreign exchange gain, gain on disposal of fixed assets as well as higher scrap sales. High operating expenses impeded the growth of operating profit which ticked up by a negligible 0.12 percent in 2022 with OP margin sinking to 3.74 percent. Finance costs plunged by 4.12 percent year-on-year in 2022 despite a high discount rate as the company paid off its external borrowings during the year. This pushed the gearing ratio down to 33 percent in 2022. Unfortunately, the topline growth couldn’t trickle down to produce a healthy bottom line in 2022. SHEZ’s net profit slid by 35 percent year-on-year in 2022 to clock in at Rs.79.92 million with EPS of Rs.8.27 and NP margin of 1 percent.

SHEZ’s topline posted year-on-year growth, however with a considerably lower momentum of 7 percent. Initially, the juices segment continued to perform better, however, after the imposition of 20 percent FED on sugary fruit juices, the volume went significantly down. Overall, the demand remained stressed due to a drastic rise in inflation and shrinkage in the purchasing power of consumers. The company also increased the prices of its products to pass on the impact of cost hikes which further dented the demand. Gross profit enlarged by 17.30 percent year-on-year in 2023 with GP margin further rising to 23.8 percent. Both distribution and administrative expenses multiplied by 12.94 and 12.71 percent respectively in 2023 due to higher payroll expenses and POL prices. Net other expenses shrank by 72.74 percent year-on-year in 2023 due to higher realized and unrealized exchange gains and scrap sales. Operating profit picked up by 47.73 percent year-on-year in 2023 with OP margin climbing up to 5.16 percent. Finance cost gave a severe blow to SHEZ’s bottom line as it grew by 134.62 percent year-on-year in 2023 due to an unprecedented level of discount rates and elevated external borrowings. SHEZ’s gearing ratio jumped up to 39 percent in 2023. High finance cost squeezed the bottom line by 40.18 percent year-on-year in 2023 to clock in at Rs.47.81 million with EPS of Rs.4.95 and NP margin of 0.55 percent.

After two successive years of topline growth, SHEZ recorded a 6.75 percent year-on-year drop in its topline in 2024. The imposition of 20 percent FED on juices, squashes, and syrups resulted in heightened prices and reduced sales volume. The cost of sales couldn’t be reduced proportionately due to higher input prices, elevated energy tariffs, and inflationary pressure. This resulted in 22.58 percent thinner gross profit recorded by the company in 2024 with GP margin slipping to 19.75 percent. Shrunken sales volume resulted in a 5.12 percent lower distribution expense in 2024. Conversely, administrative expenses ticked up by 1.11 percent in 2024. Net other expense was recorded at Rs.84 million in 2024, up from Rs.8.95 million in the previous year. This was due to a massive decline in other income in 2024. Squeezed other income is due to a high base effect as the company recorded higher exchange gain in the previous year due to a considerable decline in the value of local currency. Conversely, the company recorded an exchange loss in 2024. SHEZ recorded an operating loss of Rs.33.91 million in 2024. Finance costs grew by 18.74 percent in 2024 due to a higher discount rate. The company recorded a net loss of Rs.462.81 million in 2024 with a loss per share of Rs.47.89.

Future Outlook

The company’s keen interest in boosting its exports is an apt strategy in the face of the deteriorating purchasing power of customers in the home market. The company has significantly leveraged the international markets of Germany, Canada, Saudi Arabia, and the United Kingdom. However, indigenous macroeconomic conditions don’t look promising and will continue to pose grave challenges to the company. The imposition of heavy FED, heightened energy tariff as well surge in key inputs and conversion costs will continue to take their toll on the financial performance of SHEZ.