Nestle: rising high on consumerism

When it comes to fast moving consumables, the Countrys middle class is buying like never before. Consequently, Nestle is one of the many food producers enjoying the ride of a lifetime. And in a sector where up is the only place to go, Nestle continues to reign supreme, boasting a remarkable 25 percent accretion in its bottom line at the end of CY12.
With the dairy segment continuing to act as the Companys backbone, the year saw Nestle benefitting equally from a volumetric uptick as well as the fact that inflationary costs have been easy to pass onto consumers.
Gross margins rose by 1.4 percentage points over the year and the strength of the top line also boosted the Companys earnings, despite rising competition in the segment.
The year also saw the firm upping its ante, introducing a number of products in its ambient and chilled dairy and juices segment. Additionally, market penetration for Nestle Koko Krunch and Fitnesse breakfast cereal improved over the year, capturing precious revenue from a segment that has been explored only tentatively by other food producers in the country.
Companys selling expenses climb up by 28 percent year-on-year as a result of continued investments in advertisement campaigns and brand activation activities for the various new products launched during the year.
Despite the fact that Pakistan is in the middle of a laggard phase of industrial growth, the food producers have largely been able to retain a strong grip on their margins during CY12, with the sectors combined profits having risen by a cumulative 44 percent by the end of the nine month-mark in 2012.
Going forward, any macroeconomic improvement abetted by the monetary easing and declining inflation is only going to improve the sectors profitability on the whole.
Consequently, Nestles growth momentum is also set to remain on track in the coming quarters, what with the rising middle income populace increasingly valuing convenience over anything else and a room in the market for innovative products fuelled by the driving demand by a consumer that has a wider disposable income.

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Nestle Pakistan Ltd.

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Rs (mn)                             CY11       CY12     % chg

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Sales                             64,824     79,088     22.0%

Cost of sales                     48,099     57,564     19.7%

Gross profit                      16,725     21,523     28.7%

Gross profit margin               25.80%     27.21%         -

Distribution and other

 selling expense                   6,862      8,787     28.1%

Administrative expenses            1,405      1,770     26.0%

Finance cost                       1,050      1,828     74.1%

NPAT                               4,668      5,864     25.6%

Earning per share (Rs)            102.94     129.32     25.6%

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Source: KSE notice