Nestle Pakistan Limited is a nutrition, health and wellness company. The principal activity of the company is manufacturing, processing and sale of food products, including imported products, which include dairy, confectionery, culinary, coffee, beverages, infant nutrition and drinking water. The firm operates through two segments: Milk and nutrition products, and Beverages.
The Milk and nutrition products segment consists of various products like milk and nutrition products, and milk-based products and cereals. The Beverages segment include beverages, and juices and water. The overall portfolio of the products include ambient dairy, chilled dairy, juices, bottled water, culinary and food, baby food, breakfast cereals, coffee and confectionery.
Nestlé is one of the top employers in Pakistan, creating jobs in the local economy. As part of Nestlé's global Creating Shared Value approach, the firm is also working with stakeholders in governmental and non-governmental organisations to make a positive impact in the fields of Nutrition, Water, Environmental Sustainability and Rural Development. A concrete example is the "Nestlé Healthy Kids Programme".
Nestlé S.A., the parent company holds the largest shareholding in Nestlé Pakistan Limited. Incorporated in Switzerland, the parent company holds 26,778,229 ordinary shares representing 59% equity interest in the Company. A breakup of the shareholding is given in the table.
Nestlé Pakistan in FY16 ON the back of growing middle income class and improving economy, improved security situation and low inflation, 2016 was a better year for the FMCG sector. Nestlé Pakistan achieved the top line growth of 9.1 percent year-on-year through effective product mix, numeric distribution expansion and investment behind brands. Gross profit margin improved by 2.3 percent as a result of favourable input prices and effective control on total delivered cost through the Nestlé Continuous Excellence (NCE) initiatives. Net profit margin also increased by two percent through continuous focus on operational costs.
Year on year, the firm also experienced growth in dividends. This positive trend in dividend payments is noteworthy since very few companies in the Food Processing industry pay a dividend. Additionally, when measured on a five year annualized basis, dividend per share growth is above the industry average relative to its peers, while earnings per share growth are in-line with the industry average.
Nestlé Pakistan 1QCY17 Nestlé Pakistan started 2017 on a positive note with earnings for the first quarter up by 19 percent, year-on-year. The winning streak continued from CY16 where firm's revenues shot up by nine percent primarily on the back of rising volumes, controlled costs, and numeric distribution expansion and investment behind brands.
In 1QCY17, the firm's top line was again up by 14 percent, year-on-year owing to factors listed before. Selling and distribution costs were up by 25 percent year-on-year, while finance cost was down. Nestlé Pakistan's margins have been rising; gross margins were the highest in CY16 in at least the last six years. However, a key risk factor for the company going forward could be the sustainability of these high margins as most commodity prices like sugar, coffee and palm out prices have already bottomed out.
Nonetheless, the company has aggressive plans to enhance its product base through innovation and renovation, which remains an integral part of the its vision to positively enhance the quality of life of its consumers. And evidence of this lies in the firm's product launches in 2016, which as per the Director's Report were MAGGI CHOTOO, NESTLÉ YOGURT (Mango), NESCAFÉ 3 in 1, NESTLÉ ACTICOL, NESTLÉ NESVITA YOGURT, FITNESSE CEREALS, NESTLÉ DOCELLO DESSERT MAGIC, NESTLÉ FRUITA VITALS (White Grape Lychee), and NESTLÉ EVERYDAY Double Creamy.
Outlook The market has confidence in Nestle, and expects it outperform. The firm is investment driven. In 2016, Nestlé Pakistan made investments of Rs 4.1 billion including expansion and development projects. And with the country entering the 'Hot Zone' with CPEC, the firm is hopeful that the growth trend in earnings as well as investments will continue.
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Pattern od Shareholding - Nestle Pakistan
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Categories of Members Percentage
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Directors and their spouse(s) and minor children 4.47
Executives 0
Associated Companies, undertakings and related parties* 78.45
Financial Institutions 0
Insurance Companies 0.03
Mutual Funds, Modarabas and Pension Funds 0.22
Joint Stock Companies 0.01
Foreign Investors 2.97
General Public (Individuals)
a) Locals** 12.82
b) Foreign 0
Public Sectors Companies & Corporations 0.99
Others 0.04
Total 100
*Shareholders' Holding 5% or above
Nestlé S.A. 59.05
IGI Insurance Limited 9.62
Packages Limited 8.05
Sheikh Sultan Ahmed Chawla 7.89
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Source:Company accounts
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Nestle Pakistan
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2010 2011 2012 2013 2014 2015
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Gross Profit Ratio 27% 26% 27% 28% 28% 33%
Operating Profit Ratio 13% 13% 14% 13% 15% 16%
Profit before Tax Ratio 11% 10% 10% 9% 11% 12%
Profit after Tax Ratio 8% 7% 7% 7% 8% 9%
Inventory Turnover Ratio 8.9 8.2 7.7 7.8 7.8 7.2
Total Assets Turnover Ratio 2.5 2.2 1.8 1.7 1.9 2.1
P/E Ratio 26.2 34.9 36.6 58.4 52.1 40.4
ROCE 51% 43% 31% 27% 55% 61%
Debt to Equity Ratio 66% 69% 69% 68% 61% 53%
Current Ratio 0.9 0.9 0.8 1 0.7 0.7
Interest Coverage Ratio 12.1 7.2 5.4 4.4 5.5 8.3
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Source: Company Accounts
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Nestle Pakistan
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Rs (mn) 1QCY17 1QCY16 YoY
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Sales (net) 30,417 26,733 14%
Costsof goods sold 18,997 17,009 12%
Gross profit 11,420 34,127 -67%
Distribution & selling exp 4,385 3,511 25%
Administrative exp 767 669 15%
Operating profit 6,269 29,947 -79%
Finance cost 195 258 -24%
Other operating exp 468 447 5%
Other income 45 52 -14%
Profit before tax 5,651 29,295 -81%
Taxation 1,550 1,451 7%
Profit after tax 4,100 27,844 -85%
EPS (Rs/share) 90.42 75.89 19%
Gross margin 35.40% 33.14% -
Operating margin 17.04% 15.84% -
Net margin 10.54% 8.51% -
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