Nestle Pakistan: buoying on higher sales

Looking at Nestles financial performance, one kind of wonders, whats this talk of economic slowdown all about?
Having seen a topline growth of 20 percent in 2008, the firms revenues jumped by 20 percent in 2009 yet again - showing a strong demand for its offerings, seen consistently growing during the past decade.

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Nestle Pakistan Ltd

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Rs (mn)                          CY09        CY08      %chg

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Revenue                        41,155      34,183       20%

Cost of goods sold             29,256      25,231       16%

Gross profit                   11,898       8,952       33%

Gross margin                       29%         26%      10%

Administration exp              1,085         956       13%

Distribution & selling exp      5,238       3,890       35%

Other operating exp             1,091       1,382      -21%

Finance cost                      442         557      -21%

PAT                             3,005       1,552       94%

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Source: KSE announcement
The companies increased focus on advertisement is evident from the hike in distribution and selling expenditure for the period - but more evident is the surge in exports to Afghanistan which jacked the distribution expenses as a percentage of total revenues.
The relatively stable rupee against the US dollar during CY09 over CY08 led to a sizeable reduction in exchange losses - helping the firm attain 7 percent net profit margins versus the relatively modest 4.5 percent achieved during CY08.
Pakistans ever rising population and the strong brand equity of the firms products - pose a rosy picture for the firms future. The strong dairy infrastructure and the wide customer base will likely help the firm maintain its current status of market leader in the foreseeable future.
Nestle Every Day, however, might face stiff competition as the new competitor Engro is fiercely marketing its Tarang milk - special targeted to tea consumers. Therefore, another year of increased advertisement expenditures would probably be the outcome as Nestle intends to continue its strong presence in the segment.
The growth potential in the bottled water sector is enormous given very low per capita mineral water consumption in Pakistan. Not that the companys mineral water brand does not face stiff competition - but despite dozens of new entrants, Nestle Pure Life has stood out strong as the superior brand amongst all.