NESTLE PAKISTAN LIMITED

S.M. ABBAS ZAIDI,
Research Analyst
, PAGE
June 15 - 21, 2009

Nestle Pakistan Ltd. engages in manufacturing, processing, and sale of food products in Pakistan. The company offers dairy and chilled dairy products, including UHT milk, yogurt, raita, ghee, and cream, beverages, such as coffee, juices, and instant drinks, and bottled water in non-returnable and bulk bottles for home and office delivery.

The Company also offers infant cereals, prepared meals, such as noodles, breakfast cereals, and mints, chocolates, and confectionery and culinary products. The major brands include Milkpak UHT, Nestle Everyday, Lactogen, and Nescafe.

The company, formerly known as Nestle Milkpak Ltd., was founded in 1979 and is based in Lahore, Pakistan. Nestle Pakistan is a public limited company and is listed in Karachi and Lahore stock exchanges. Nestle Pakistan Limited is a subsidiary of Nestle S.A.

CONTRIBUTION TOWARDS PAKISTAN'S ECONOMY

Nestle started investing in Pakistan many years ago. It has established the country's largest milk collection networks. Today, Nestle collects milk from 140,000 farmers over an area of 100,000 square kilometers in Punjab who, as a result, receive over CHF 120 million per year directly from the company. Headquartered in Lahore, Nestle is Pakistan's largest consumer goods company with sales of around CHF 500 million. The company has five production facilities in different parts of Pakistan: two multi-product factories in Sheikhupura and Kabirwala, respectively, and three bottled water plants, one in Islamabad and two more in Karachi. Over the years, Nestle has created over 10,000 direct and indirect jobs in Pakistan. It is estimated that a million people earn their livelihood with Nestle in Pakistan, ranging from employees, farmers and distributors to suppliers, transport companies, and retailers. Nestle, in 2007 opened a state-of-the-art milk processing plant in Kabirwala, Punjab. The plant, Nestle's largest milk reception facility in the world, has a processing capacity of 2 million liters of milk per day.

FINANCIAL RESULTS ANALYSIS

Nestle Pakistan Limited has shown earnings results for the first quarter ended March 31, 2009. For the quarter, the company has posted PKR 847.279 million ($10.5 million) as profit after tax as compared to PKR 626.524 million in the corresponding period in 2008. The company's earning per share has increased to PKR 18.68 in this period against PKR 13.82 in the same period a year back. According to the financial results, the company's net sales increased to PKR 9.238 billion in this period against PKR 8.427 billion in the same period last year including exports to Afghanistan, which grew strongly (+41%). The company's profit before tax increased to PKR 1,184.397 million in this quarter against PKR 894.384 million in the same period in 2008.

In the year ended December 31, 2008, the company witnessed a 17% increase in company's net sales figures. Profit after taxation stood at PKR 1,552,894. Earnings per share for the same period were PKR 34.24. The company had announced a final cash dividend for the year ended December 31, 2008 at PKR 25 ($0.003) per share or 250%. This is in addition to interim dividends already paid at PKR 16.50 per share or 165%.

FINANCIAL HIGHLIGHTS
(RS. IN MILLION)
INDICATORS JAN-MAR 2009 JAN-MAR 2008 CHANGE
Sales 9,239 8,427 +10%
Operating Profit 1,546 1,212 +28%
% of sales 16.7% 14.4%  
Net Profit 847 627 +35%
% of sales 9.2% 7.4% -
Earnings per share 18.68 13.82 +35%
Source: Nestle Pakistan

IMPACT OF GLOBAL DOWNTURN

The effects of the economic downturn in 2008 were still prevalent in the early part of 2009, which together with the prevailing political/security situation, resulted challenging trading conditions during the first quarter. Despite this, Nestle Pakistan managed to grow its sales by more than 10% with contributions coming from all its key brands. Fresh milk collection during the spring flush was in line with the requirement.

FOOD INDUSTRY IN PAKISTAN

Pakistan is considered as one of the top ten food and beverages manufacturing countries in the world, attracted foreign direct investment of US$593.83 million in the last two years. Agriculture contributes 21% to the country's GDP and is the second largest source of foreign exchange earnings for the country. It employs 44% of the total work force and is the main source of livelihood for the 66% of the country's population. Wheat is a major contributor to the Pakistan's food sector with a current production of 21.7 million tons. Rice also holds a strong position in the agriculture sector and its production increased by 2.3% to 5.6 million tons in 2007-08. Sugarcane is another major crop of Pakistan. Products like dairies, fisheries, fruits, and vegetables also play a vital role in the country's economy. Pakistan ranks as the 3rd largest producer of milk producing 42.19 liters per annum. The fisheries sector registered a growth rate of 11% this year, with the export of fish and fisheries products reaching over 100,000 tons. The beverage industry in Pakistan also possesses tremendous potential and currently there are about 170 units operating in Pakistan that produce water, syrups, and squashes.

CONCLUSION

Despite an economic recession worldwide, Nestle Pakistan managed to increase its sales by 10% resulting in an automatic increase in operating profits. Net profit margin has also improved, with some upsets coming from higher tax provisions and financial costs.

This is a positive starter in the year, however, as a result of the cyclical nature of the dairy business, it is expected that the margins of the company may be reduced somewhat because of the increase in fresh milk costs. Nevertheless, Nestle Pakistan will likely to maintain its strong position in the market.