More than a week ago, the worlds largest food and drinks company, Nestle globally announced an organic growth of just 3.2 percent in 2016, reportedly the slowest in at least two decades. Google organic growth, and you will get something like this: a process of business expansion by increased output, customer base expansion, or new product development, as opposed to mergers and acquisitions, (inorganic growth). The slow growth is largely the result of deflation and sluggish global economies.
However, things at home are more on the sanguine side with rising consumerism and demand. Nestle Pakistans financial performance has been better. In 2016, the firms revenues shot up by nine percent primarily on the back of rising volumes. This is also the average growth is sales over the last four years.
Nestle Pakistans gross profit margin increased by 226 basis points woing to improved product mix, favaourable input costs due to low inflation, competitive pricing and the stable rupee dollar parity. Along with lower cost of gods sold relative increase in sales, effective cost management also lifted the firms operating margins. And lower finance cost added to the bottomline growth, which stood at 35 percent year-on-year in CY16.
Nestle Pakisans margins have been rising; gross margins are the highest in at least the last six years. While this is commendable, a risk point for the firm could be margin sustenance given the turnaround being witnessed in global commodities; sugar prices are at four-year high, coffee prices have bottomed out, and palm oil prices have seen a surge.
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