Naween A. Mangi
Sep 21 - 27, 1996


  1. 18.35% dividend yield for shareholders

  2. Rs 523 million in after-tax profits

  3. MCA still undecided on merger with Lipton

Brooke Bond Pakistan Ltd, one of the country's major packed tea businesses reported their results for the eighteen month period ended June 30, 1996 this past week.

Posting strong growth in profits, Brooke Bond announced a 290% final cash dividend for the period, giving shareholders a 18.35% yield on the Rs 158 share. They had previously declared a 125% dividend in the interim period.

The Rs 29 earnings per share was a substantial jump from the Rs 6 and Rs 7 for the previous two years. Although it is true that the company had a substantial jump in both sales and profits, the payout could also have been issued as a consolation and reassurance measure for the shareholders of the company. The expected merger between Brooke Bond and Lipton of Lever Brothers has been approved by both companies and is still awaiting the final signal from the Monopoly Control Authority. As PAGE reported early in the year, Brooke Bond's earnings have been consistently stronger than those of Lever Brothers; and in addition to this, Brooke Bond shares were not to be surrendered on a one-to-one-basis with Lever Brothers shares. Both these factors led to some concern about the interests of small Brooke Bond investors, who were bound to suffer as a result of the merger. The current dividend payout is likely to have boosted shareholder confidence to some extent.


While the merger still remains unapproved by the MCA, Brooke Bond's net sales for the eighteen month period ended June 30 1996 at Rs 6.1 billion were almost 65% higher than the previous year's Rs 3.7 billion. With the cost of sales rising 52%, the company's gross profit margin improved from 13.6% to 20.1%. It should be noted though that current figures are for eighteen months.

Both operating expenses and financial charges were more than twice as high as the previous period and pretax profit for the period was Rs 835 million, 179% higher than the last twelve month period. And after-tax profits were 184% higher in the current period at Rs 523 million.

Company officials, commenting on the results described them as "exceptional" and attributed them to "good management" and "the 6% fall in international tea costs."

With a strong, aggressive marketing strategy, Brooke Bond has captured a significant share of the market for packed tea. And their performance from a historical standpoint has also been solid, with both sales and profitability showing a consistently upward trend.

Although it is difficult to quantify, the effect of the high rates of smuggling of tea into the local market as well as the exceptionally high taxes and duties on the legal import of tea on branded products like Brooke Bond is likely to be significant.

According to Abdul Waheed Khawaja, the Chairman of the Pakistan Tea Association, the annual projected consumption of tea in the country is 150 million kg, only 90 kg of which will reach the market through legal import. Over 25 million Kg of tea has been smuggled in the current year alone. Against this backdrop, Brooke Bond's results seem commendable indeed, since most analysts had described the situation for both branded and unbranded players as one of survival rather than profitability.

After the finalisation of the pending merger of Lipton, which is owned by Lever Brothers Pakistan, and Brooke Bond Pakistan Limited, about 70% of the tea market will be controlled by one group.