Nestle enjoying the ride

With other local industries consistently bemoaning stagnation the past few years, Food manufacturers have continued to enjoy double-digit growth statistics spurred on by a consumer base that is buying like never before.
And while on one hand, the market is seemingly becoming over populated with a number of manufacturing giants working in each other’s shadows, the pie just seems to be expanding, with each manufacturer doing just as well as the next.
And Nestle is certainly no exception. Posting a bottom line growth of 27 percent over the same period last year, Nestle Pakistan seems to be right on track, hammering it home at the end of the nine-month mark.
Smart campaigning and product line diversifications during the last three months have earned Nestle an 18 percent increase in sales quarter-on-quarter, with the tally ringing in at Rs 18.7 million during the last three months. Overall, lead by a hike in demand for the company’s Ambient dairy and beverages, the top line has grown consistently throughout the year, totaling nearly Rs 60 million at the close of the third quarter.
However, hikes in prices of commodities such as maize, wheat and milk have also had a significant impact on the company’s profitability which could have sky-rocketed further were it not for the margin eroding inputs. During the period, Nestle’s cost of doing business escalated by 14 percent, amounting to 72 percent of the firm’s total sales during this period.
Moreover, the firm’s selling expenses have also jumped up by 31 percent during the quarter, owing largely to the advertisement campaigns for Nestle Actiplus Yogurt and the continued campaigning for new flavours of Nestle’s Fruita Vital juices.
Adding to that were finance costs that went up 72 percent during the quarter, likely owing in part to additional borrowing to fund cash flow requirements of a rapidly expanding entity. Gross margins for the company however, still managed to be reigned in at 27 percent, a marginal improvement over last quarter, indicative of the management’s increased efforts to improve efficiencies.
And as they say, all is well that ends well. Because from the way things stand at the moment, Nestle is at the right place, at just the right time.
Enjoying an unprecedented rise in demand for packaged foods, manufacturers have been on cloud nine with consumers spending big bucks on food items that have historically not been a part of the traditional Pakistani diet.
From two-minute Noodles to packaged juices, breakfast cereals and bottled water - food items that were the prerogative of a selected segment of the Pakistani consumers up until a few years ago- the sector is on a high like never before.
And this hormone fuelled growth spurt is just the beginning of a boom that has not yet hit its peak, experts agree.

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Nestle Pakistan Ltd.

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Rs (mn)                      3QCY11     3QCY12      % chg

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Sales                        15,909     18,798      18.2%

Cost of sales                11,902     13,579      14.1%

Gross profit                  4,006      5,218      30.3%

Gross profit margin          25.18%     27.76%      10.2%

Distribution and other        1,614      2,116      31.1%

selling expense

Administrative expenses         357        413      15.7%

Finance cost                    333        573      72.1%

NPAT                          1,116      1,418      27.1%

Earning per share (Rs)         24.6      31.27      27.1%

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