NESTLE PAKISTAN LTD.

S.KAMAL HAYDER KAZMI,
Research Analyst
, PAGE
Aug
 31 - Sep 06, 2009

Nestle Pakistan Ltd. engages in manufacturing, processing, and sale of food products in Pakistan. The company offers milk, dairy, and chilled dairy products, including UHT (ultra high temperature) 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.

Nestle Pakistan is a public limited company and listed in Karachi and Lahore stock exchanges. Nestle Pakistan Limited is a subsidiary of Nestle S.A.

NESTLE PAKISTAN'S MILK

NestlÈ has lion's share in packaged UHT milk and bottled water industries of Pakistan. NestlÈ claims that it markets pure milk, aseptically packaged in the perfect hygienic conditions. The company buys milk from the local farmers dirt-cheap and in its advertisement campaigns ridicules and degrades the traditional milk distribution system of the country. It has invested millions in its aggressive media ventures for convincing common consumers to stop buying milk from traditional chains because it is unhygienic and unfit for human consumption.

PACKAGED MILK INDUSTRY IN PAKISTAN

MILK BRANDS AVAILABLE IN PAKISTANI MARKET

NO BRAND NAME TOTAL ENERGY (K CAL) CALCIUM IN 250 ML (MG)
PSQCA* STANDARD MUST . .
1 NestlÈ Nesvita 83.1 391
2 Dairy Queen 129 277
3 Haleeb Skims 82.34 310
4 Haleeb 139 244
5 NestlÈ Milkpak 155 238
6 Noorpur 142 527
7 Olpers 184.9 436
8 Open milk** 127 352
*PSQCA: Pakistan Standards and Quality Control Authority ** Sole non-UHT milk

Pakistanis have traditionally been buying open milk from local vendors and consuming it after pasteurizing it at home. Nestle in early 1980s got into the country and developed a market for packaged UHT milk. There are now many packaged UHT milk brands in the country competing with each other.

Company's financial performance shows the key structure of the company. During the first quarter 2009, the fixed assets were Rs 10.87 billion, the current assets were 8.10 billion which were increased by 42.7% and net assets were decreased by 6.5%. The current liabilities of the company were increased by 48.3%.

The affects of the economic downturn in 2008 were prevalent in the early part of 2009, which together with the prevailing political situation, resulted challenging trading conditions during the first quarter. Despite this, the sales grew by 10% with contributions coming from all key brands. Fresh milk collection during the spring flush was in line with the requirements.

FINANCIAL PERFORMANCE (RS in 000)

INDICATORS Jan-Mar 2009
Fixed assets 10,887,599
Current assets 8,109,445
Current liabilities 7,868,899
Net assets 4,102,386

PROFIT AND LOSS

Rs in Mn

Sales 9,239
Operating Profit 1,546
% of sales 16.7%
Net Profit 847
% of sales 9.2%
Earnings Per Share (Rs) 18.68
Source: Nestle Pakistan

The financial performance for the period shows that the net sale for the first quarter reached PKR 9.2 billion. Operating profit for the three-month period reached PKR 1.5 billion with the margin also improving as a result of effective sales mix management and fixed cost containment. Net profit margin has also improved with some offsets coming from higher tax provisions and financing costs.

ECONOMIC CONTRIBUTION

Nestle Milkpak Ltd. entered the export market in 1993, and its overseas markets include UAE, UK, USA, Sri Lanka, Malaysia, Bangladesh, Afghanistan, and Central Asian States.

The company provides over 1,100 job opportunities for skilled, unskilled, and professional workers. It constitutes a major factor in the rural economy by disbursing over PKR 1.37 billion annually through milk purchases from approximately five million household members of dairy farms. Today, Nestle collects milk from 140,000 farmers over an area of 100,000 square kilometers in Punjab.

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. Nestle, in 2007 opened a state-of-the-art milk processing plant in Kabirwala, Punjab. The plant, NestlÈ's largest milk reception facility in the world, has a processing capacity of 2 million liters of milk per day.

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 similarly, with some offsets coming from higher tax provisions and financial costs.

This is a positive start to 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 maintains its strong position in the market.