Banking on the rising appetite for packaged food products and growing population in Pakistan, sales revenue of Nestle Pakistan Limited, subsidiary of the worlds biggest food group, jumped to Rs 25.6 billion during the first half of the current year as against Rs19.6 billion same period a year earlier.
Higher retail prices contributed to the revenue growth. On the other hand, prices of commodities also continue to rise in the current year, reducing gross margin to 27 percent from 31 percent in the year ago period.
The price of cocoa, one of the main ingredients used in chocolate preparation, is currently hovering around $3229 per ton, a jump of around 15 percent in the past one year, according to the IMF.
It is not only chocolate business that is feeling the pinch as prices of other commodities such as coffee, powdered milk and wheat have also risen massively over the past few months.
However, continuing emphasis on tight cost control and better inventory management helped lessen the negative impact of surging commodity prices on the companys margin. As the company managed to keep operating, financial and administration expenses in check, its net profit surged 29 percent over same period last year.
Efficiency improvements and investments in its distribution network have helped Milkpaks producer to streamline its supply chain in the space of few years, as the company now owns the network of 500 village milk collection centres.
But, there are growing concerns that recent flood will haul down the pace of milk supply and may lead to low production of dairy products down the line. However, in the absence of statistics related to flood damages, it will be difficult to measure impact on company at this point in time.
Besides, severe weather condition in certain parts of the world, such as drought and flooding, will likely keep commodity prices volatile during the later half of the current fiscal year.
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Nestle Pakistan Ltd
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Rs (mn) 1HCY10 1HCY09 %chg
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Net Sales 25,601 19,692 30%
Cost of goods sold 18,659 13,652 37%
Gross profit 6,942 6,040 15%
Gross margin 27% 31% -12%
Administration exp 574 503 14%
Distribution & selling exp 3,030 2,730 11%
Other operating exp 414 405 2%
Finance cost 236 301 -22%
PAT 1,970 1,530 29%
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Source: KSE Announcement