Noon Group of companies is one of the oldest business groups in Pakistan. It was established by the prominent Noon family of Punjab. The company - Noon Pakistan Limited - was incorporated in 1966 as a public company. Noon group owns a diversified portfolio of companies under its belt. This group has its presence from cement industry to textile and from sugar to dairy product.
Nurpur is the food arm of Noon Group of Companies. Nurpur is principally engaged in processing and sale of various dairy products and juices with the brand name of Nurpur. Nurpur claims that it is the first company in private sector of Pakistan to operate a Spray Dryer for the process of milk powder. Currently Nurpur is producing various products namely Butter, Cheese, UHT Milk, HCLF, Pasteurized Milk, Flavoured Milk, Juices, Water, Desi Ghee, Honey and Jam.
STOCKHOLDING PATTERN About 43 percent of the total stocks or about 3.727 million shares are currently held with the public at large. Twenty-five percent and 6.07 percent is owned by BHF-Bank (Switzerland) Ltd and Tundra Pakistan Fond respectively and 11.7 percent is owned by locals. It is worth noticing that the majority of public shares are owned by foreign investors. Other major shareholders are Noon Pakistan Staff Provident Fund that own about 14 percent shares and Noon Sugar Mills Employees Provident Fund which has a holding of 5.49 percent. This is very troublesome that company has invested its employees' life savings so heavily in its own stocks, considering that the company has been making losses year after year.
ENTER FFBL Fauji Fertilizer Bin Qasim Limited (FFBL) is in the process of diversifying their business. They have recently announced establishment of meat processing plant for export of Halal meat and want to join the FMCG sector by establishing their presence in dairy sector as well. For this specific reason they showed interest in acquiring the major stakes in Nurpur Dairy.
Overall NOPK had been underperforming the market because of its recurring losses. However, following the announcement by FFBL NOPK's stock has outperformed the market. In more recent update, FFBL has obtained the Competition Commission of Pakistan's no objection / pre-merger clearance for the acquisition of 24.9 percent voting and 24.9 percent non-voting shares of Noon Pakistan Limited. Also, there is an option to acquire, an additional 26.1 percent voting and 26.1 percent non-voting shares (which option may be exercised if and when the company forms an intention to acquire majority shareholding / control of Noon Pakistan Limited). FFBL interest lies in production capacity of Nurpur's plant and its location which is in the middle of Punjab, Bhalwal, District Sargodha.
NOON'S FINANCIAL PERFORMANCE Nurpur's performance since FY12 is very troublesome. Current half yearly result has shown no change in its performance overall. The cumulative sale for half-year ended December 2014 declined by 12.1 percent over corresponding period and remained at Rs938.5 million against Rs1,067.2 million during same period of last year.
The main revenue stream comes from sales of its dairy products. The company witnessed a decline in sales since FY12 and that pattern is still in progress. In FY14 ending June 2014, the company lost 25 percent in sales over FY13 and this loss of sales turned their books red. NOPK posted loss of Rs120.85 million last year before tax. The company management gives two main reasons for their losses. First they blame it on high cost of raw material which has hampered the company's progress, as due to teething competition in the dairy segment NOPK is unable to pass the cost to its consumer. Also, the company blames the economic and political situation of the country responsible for lack of sale even though the industry's numbers are impressive over all.
Anybody following the dairy industry, would know that NOPK's second reason - the economic and political situation - makes very less sense, since both Engro and Nestle have increased their production over the course of years. So, essentially NOPK's first reason is the real factor behind its red bottom line as it cannot match the economy of scale advantage which the two giants Engro and Nestle have.
Flag ship butter plant processed only 2.2 million kgs of milk while the capacity is 44.4 million kgs. With the exception of UHT Cream and juices where the production has increased every other item saw its production down significantly.
FUTURE OUTLOOK According to the financial statement year ending FY14 the future looks very bleak for Nurpur and if we just follow the statements 1HYF15 is showing similar situation. They are not only facing issue with their sales but operating loss to net sales shows that company's core operations are not profitable. This is quite understandable since they are competing with industry giants like Engro and Nestle. But with this new opportunity with Fauji Fertilizer Bin Qasim Limited (FFBL) could not have come at a better time. FFBL not only has capital to compete with current leaders in dairy industry but they also have marketing and other recourses necessary for this business.
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NOON PAKISTAN - P&L
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HY14 HY13 FY14 FY13
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Rs (mn) Rs (mn) YoY Rs (mn) Rs (mn) YoY
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Sales 938.51 1,067.23 -12% 2,194.03 2,926.23 -25%
Cost of sales 861.55 986.08 -13% -1,989.78 -2,634.44 -24%
Gross profit 76.96 81.15 -5% 204.25 291.79 -30%
Distribution cost -71.76 -79.85 -10% -154.83 -307.29 -50%
Admin expense -49.66 -55.24 -10% -111.15 -82.17 35%
OTHER INCOME 6.23 9.65 -35% 17.93 10.56 70%
Operating Loss -58.49 -44.27 32% -60.61 -91.62 -34%
Finance cost -34.69 -30.93 12% -60.25 -53.06 14%
Loss after taxation -102.301 -77.12 33% -142.06 -127.94 11%
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Source: Company accounts
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