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Coronavirus
VERY HIGH
Pakistan Deaths
15,754
13524hr
Pakistan Cases
734,423
468124hr
Sindh
269,840
Punjab
255,571
Balochistan
20,499
Islamabad
67,491
KPK
101,045

NestleNestlé Pakistan seems to be doing well in 2012. The Companys financials for the first quarter ended March 31, 2012 show that the foods giant posted a profit after tax of Rs1.664 billion. Nestlés product portfolio in Pakistan is truly diverse, which includes dairy products such as Milk Pak, Nido, Everyday and yogurts; beverages like Fruita Vitals, Milo and Nescafe; and food products like Maggi noodles, Cerelac, breakfast cereals, and confectionaries. The Companys net sales crossed the milestone of Rs20 billion in 1QCY12, as the milk and nutrient businesses seem to be growing. The competitive landscape has drastically changed for Nestlé Pakistan in recent years following the arrival of Engro Foods and strong performance of Unilever Foods. Nestlé has had to deal with multiple competitors across various product lines; however, its consistent revenue growth shows that the size of the pie is expanding as the competition is penetrating deeply into the addressable markets. Nestlés topline grew by a strong 24 percent during 1QCY12, but somewhat diluted by a larger, 25.4 percent increase in cost of goods sold. Resultantly, these costs consumed 72.7 percent of net sales, and brought down the gross margin by 78bps compared to same period last year. The spiraling prices of key commodity inputs (wheat and milk) along with the energy crisis continue to weigh heavy on the margins. Nearly 15 percent increase is seen in the distribution & selling expenses, whereas the administrative expenses rose by a whopping 31 percent. Nestle spent Rs12.53 on these two expense heads for every 100 bucks it earned in the quarter under review. However, compared to the competition, Nestlés distribution & administrative expenses are controlled due to its vast network and economies of scale. Nestlés non-operating performance is clearly an area that needs to complement the decent operating performance. For instance, the finance cost jumped by a whopping 125.7 percent; the other operating expenses increased by 52.2 percent; and the other operating income decreased by 52.17 percent. Healthy topline growth, coupled with somewhat controlled operating expenditures, ensured that Nestlé posted a double-digit profitability growth during 1QCY12. Yet the net margin dropped by 93bps to come down to 8.24 percent, owing to the slippages mentioned earlier. However, the profit of over 1,600 million rupees is sweeter still, especially for shareholders who earned Rs36.71 on each share during the period. Despite the rising input costs and energy issues, Nestlé is well-placed to capture a bigger slice of Pakistans food market which is forecasted by various estimates to grow in double-digit in the coming years. Services like Nestlé Professional - which markets food and beverage solutions for out-of-home establishments like restaurants, offices, airports, universities and hospitals - can also boost revenues. Nestlé may be leading in many of the product lines it operates in. However, the packaged goods share is still a fraction of the total market, and that is where the promise for sustained future growth lays.

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Nestle Pakistan Limited
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Rs (mn)                          1QCY12   1QCY11    chg
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Net Sales                       20,193   16,278     24%
Cost of goods sold              14,690   11,714     25%
Gross profit                     5,503    4,563     21%
Gross margin                     27.25%   28.03%      -
Distribution & selling expense   2,064    1,796     15%
Administrative expenses            465      355     31%
Finance cost                       429      190    126%
PAT                              1,664    1,493     11%
EPS (Rs)                          35.71    32.93     8%
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Source: KSE announcement