Nestle Pakistan Limited is one of the leading nutrition health and wellness company of Pakistan. Nestlé Pakistan is a subsidiary of Nestle S.A, a Swiss multi-national nutritional, snack food and health-related company headquartered in Vevey Switzerland.
It started its operation in Pakistan in 1988 as a food processing company. It is registered at the Karachi and Lahore stock exchange. For 10 years in a row the company has won a place among the 25 top companies of the Karachi stock exchange.
Nestle Pakistan limited headquartered in Lahore, operates four production facilities. Two of its factories are at Sheikhapura and Kabirwala, one in Islamabad and one in Karachi. Nestle Pakistan Limited operates in many ways but people, brands and products are the main flag bearers of the company image.
Nestle Pakistan Limited now operates the biggest milk collection operation in Pakistan. Currently, Nestle Pakistan collects milk from estimated 190,000 farmers spread over 145,000 square kilometres in the provinces of Punjab and Sindh.
Nestlé Pakistan today is the leading Food & Beverages Company in Pakistan, with key focus on nutrition, health and wellness and reaching the remotest of locations throughout Pakistan to serve the consumers. Nestlé Pakistan also prides itself in being the leaders in nutrition, health & wellness.
PERFORMANCE SNAPSHOT FY11 FY11 was one of the best performing year for the company. During the year, the company achieved various milestones and hence, recorded a top line growth of 26 percent. The sales for the year grew by 26 percent achieving PKR 64.8 billion.
The dynamic increase in the local sales was the reason behind the increase of total sales. Currently, the company derives 92 percent of its sales revenue from the domestic market while export sales have a contribution of eight percent in the company's sales mix.
During the period under review, the rising input costs, in particular of fresh milk, sugar, fruit pulp, raw and packing material and fuel and energy adversely affected the gross profit of the company. The gross profit margin posted a decrease of one percent and stood at 26 percent during the year as compared to 27 percent witnessed last year.
During the year, the company has invested PKR 8.9 billion in various projects related to capacity enhancement and infrastructure improvement. This, along with the increase in working capital has led to additional borrowing resulting in higher financial cost. Despite all these challenges the net profit increased.
During the period under review, the distribution and selling expense of the company was raised by 20 percent. This rise was caused due to the increase in the sales promotion and advertising expense, freight outward and the increase in the salaries, wages and amenities of the company.
The company has an increase in its fixed assets by an increase of 43 percent in its property, plant and equipment. The company has also raised its current assets by raising its advances, deposits, prepayments and other receivables by 97 percent and its stock in trade by 54 percent.
Nestle Pakistan Limited has launched new products during 2011 which included: Milkpak powder milk, Nesvita powder milk, Milkpak flavoured milk, Nesfruita juice and Fitness breakfast cereal.
PERFORMANCE OVER THE YEARS In terms of profitability and overall returns, for the period under review, the return on equity (ROE) showed a downward trend from 73.68 percent in FY10 to 61.33 percent in FY11 a decrease of 12.35 percent. The return on asset (ROA) also declined to 13.2 percent from last years 17.92percent a decrease of 4.72 percent.
Company's margins have slightly decreased. Net profit margins were 6.52 percent in FY08, 10.17 percent in FY09, 11.06 percent in FY10 has cut back to 10.03 percent in FY11.The gross profit margins were 26.19 percent in FY08, 28.91 percent in 2009, which were reduced to 26.9 percent in FY10 to 25.8 percent in FY11.The Operating profit margin was 12.01 percent in FY08, 13.55 percent in FY09, 13.32 percent in FY10 has declined to 13.05 percent in FY11.
LIQUIDITY POSITION The liquidity position remained worrisome for Nestle Pakistan Limited. With a negative net working of capital Rs 3393.43 million, the current ratio stood at one in FY08. It slightly fell down in FY09 and improved in FY10 and then fell again in FY11 by 0.8. The company has streamlined its capital structure from a D/E ratio of 2.65 in FY08 to 2.90 in FY11.This could also be a reason for the low liquidity position.
FUTURE OUTLOOK Buttressed by double-digit growth witnessed largely on account of an unprecedented hike in consumption of packaged food and drinks by a middle class that is rapidly expanding in numbers, the food producing giants the likes of Engro and Nestle have been faring remarkably well over the course of the last year.
But faced with rapidly spiralling input costs, margins are set to be whittled down considerably as the industry struggles to cope with the generally gloomy economic clime prevailing in the country. In this regard, while Nestle continues to reign over other food producers in a number of product categories, the firm's profitability will be tested by rising prices of milk, wheat and sugar in the coming quarters.
That having been said, the field remains wide open for the food producers the likes of Nestle, which continue to round up consumers with their novel products and selling ideas. In this regard, Nestle Professional and their Breakfast cereals are going to be the high growth product categories to watch out for in the coming quarters.
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Nestle Pakistan Ltd
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2011 2010 2009 2008
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PROFITABILITY
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Gross profit margin % 25.8% 27.0% 28.9% 26.2%
Operating profit margin % 13.0% 13.3% 13.5% 12.0%
Net profit margin % 7.20% 7.99% 7.30% 4.54%
ROCE % 35.5% 43.0% 40.0% 20.0%
ROA % 13.3% 17.9% 16.2% 9.3%
ROE % 61.3% 73.7% 67.9% 35.4%
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LIQUIDITY
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D/E ratio times 2.90 2.77 2.77 2.65
current ratio times 0.80 0.85 0.8 1.1
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ACTIVITY
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Total asset turnover ratio times 2.2:1 2.5:1 2.3:1 2.1:1
Inventory turnover ratio times 8.2:1 8.9:1 9.2:1 10.3:1
Price earning ratio times 34.9 26.2 18.8 38.9
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