Nestle Pakistan

Driven by the voracious demand for packaged goods and a growing population in Pakistan, revenue for Nestle Pakistan, a subsidiary of worlds largest food group, crossed Rs51 billion in 2010 from Rs41 billion last year.
High retail prices along with impressive growth in volumetric sales have contributed to the revenue growth. The exports also increased considerably as exports to Afghanistan grew by 31 percent during the first nine months ending September.
It seem that floods have exerted a negative impact on the FMCG demand, since revenue growth fell to around 21 percent in the second half of the current fiscal year compared to 30 percent revenue growth realised in 1HCY10 against the same period a year earlier.
However, revenue growth of 25 percent is impressive compared to the five year compounded annual revenue growth rate of 21 percent.
The booming commodity prices, which are the key ingredients in many Nestle products, such as milk and wheat etc, along with rising energy costs had a negative impact on gross margins, which dipped to 27 percent for the period.
In the face of volumetric growth, distribution and selling expenses as a percentage of sales fell by 2 percentage points to 11 percent. While other operating expenses eased by 25 percent, seemingly, due to lower exchange losses.
However, the continuing emphasis on tight cost controls and containment of fixed overheads helped lessen the negative impact of surging commodity prices and energy cost on companys bottom line. As a result, the companys net profit margin jumped to 8 percent, a slight improvement from previous years margins of 7.3 percent.
Going forward, milk and nutrients products, which account for 86 percent of the companys sales mix, seem to have a promising future, as evident from the fact that demand for dairy products in Pakistan has increased at a 5-year CAGR of 13.5 percent, according to Datamonitor, a market research agency.
Although the companys earnings jumped by 37 percent to Rs 90.69/share in 2010 against last year, the P/E ratio also increased massively to 26 times against around 19 times per share last year (based on 31 December market price). Since the companys P/E is standing around 37 times of late, it is quite likely that prices will soften down the line.

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Nestle Pakistan Ltd

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Rs (mn)                           CY10        CY09      chg

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Revenue                         51,487      41,156      25%

Cost of goods sold              37,608      29,256      29%

Gross profit                    13,879      11,898      17%

Gross margin                       27%         29%      -7%

Administration exp               1,311       1,085      21%

Distribution & selling exp       5,709       5,238       9%

Finance cost                       513         442      16%

PAT                              4,112       3,005      37%

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Source: KSE Announcement

Tri-Pack: looking forward to 2011
For Tri-Pack, manufacturers of packaging films of various varieties for consumer products ranging from tea, soap and cheese to cigarettes, CY10 fared fairly well.
The net revenues of the company registered an impressive increase of 34 percent, which was considerably higher than the compounded annual growth rate (CAGR) of 19 percent over the past five years. The growth in sales is mainly price-based.
The reason for the surge in cost of sales was the rise in international prices of polypropylene resin, a key raw material for manufacturing packaging films. Consequently, gross margins declined by a percentage point to 16 percent over CY09.
The bottom line of the company increased by 7 percent in CY10 over CY09. The lower net margin is attributed to a hefty tax payment, mainly on account of tax adjustments for the previous year.
Other things seem pretty for the companys future as well. There are plans for expansion with a new plant expected to start operations in 2012. Further, the packaging-film manufacturers have also ventured into more value-added products, such as films for lamination.
The crackdown on smuggling under the guise of the Afghan Transit Trade (APTTA) is also good news for the company, and there are hopes that the anti-dumping decision against the alleged dumping of BOPP - a key product manufactured by the company - in Pakistan will be taken in favour of the company. Thus, the prospects for the companys margins and earnings remain bright for 2011.

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Tri-Pack Films Limited - P&L Rs (mn)

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                      CY10        CY09         Chg

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Net Sales             7621        5686         34%

Cost of sales         6401        4695         36%

Gross profit          1220         991         23%

Gross margin           16%         17%         -8%

Other income            27          43        -37%

Finance cost           205         222         -8%

Taxation               228          95        140%

PAT                    495         464          7%

EPS (Rs)             16.49       15.47

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Source: KSE notice