FrieslandCampina Engro Pakistan Limited (PSX: FCEPL) is a subsidiary of FrieslandCampina Pakistan Holding B.V (holding company) which in turn is a subsidiary of a Dutch multinational corporation Royal FrieslandCampina which is the ultimate parent company of FCEPL.
The company was launched as Engro Foods in 2005. FCEPL is a public limited company. It has two production facilities in Sukkur and Sahiwal and a dairy farm in Nara with over 1300 milk collection centers. The company is engaged in the manufacturing, processing and sale of dairy products and frozen desserts.
Pattern of Shareholding
As of December 31, 2024, FCEPL has a total of 766.596 million shares outstanding which are held by 7901shareholders. Associated companies, undertakings and related parties which includeFrieslandCampina Pakistan Holding B.V and Engro Corporation Pakistan hold 90.93 percent shares of FCEPL followed by general public holding 5.90 percent shares of FCEPL. The remaining shares are held by other categories of shareholders.
Historical Performance (2019-24)
The topline of FCEPL rode an upward trajectory over the period under consideration. In 2018, the company recorded loss-before-tax but received group tax relief which translated into net profit in 2018. However, in 2019, the bottomline stayed in the red zone despite accounting for tax relief. In the subsequent years, the bottomline as well as margins show an uphill pattern followed by a plunge in 2023. In 2024, FCEPL’s bottomline as well as margins posted a significant rebound. The detailed performance review of the period under consideration is given below.
In 2019, FCEPL’s topline ticked up by 18.89 percent year-on-year to clock in at Rs. 38,567.02 million. This came on the back of volumetric growth in both dairy and frozen dessert segments. However, sharp increases in commodity prices and Pak Rupee depreciation pushed cost of sales up by 23.46 percent in 2019. This trimmed down gross profit by 5.32 percent. GP margin also fell from 15.89 percent in 2018 to 12.65 percent in 2019. Distribution expense plunged by 12.52 percent despite higher sales volume on account of weaker advertising budget.
Administrative expense multiplied by 30.17 percent year-on-year in 2019 due to higher payroll expense. Other expense registered a steep rise of 127.59 percent due to massive provisioning done for culling of biological assets and a sharp increase in the loss on death/disposal of biological assets. Other income didn’t turn out to be favorable either and dropped by 33.64 percent in 2019 due to high-base effect as the company booked reversals of WWF in 2018.
FCEPL’s operating profit slumped by 76 percent year-on-year in 2019 with OP margin clocking in at 0.31 percent as against OP margin of 1.56 percent recorded in 2018. Moreover, finance cost soared by 80.88 percent in 2019 on account of higher discount rate. This pushed FCEPL’s bottomline into net loss worth Rs.954.86 million in 2019 as against the net profit of Rs.63.78 million in 2018. Loss per share of Rs.1.25 was recorded in 2019 as against EPS of Rs.0.08 in 2018.
In 2020, the topline grew by 14.49 percent year-on-year to clock in at Rs.44,155.02. This was despite shutting of retail and leisure outlets due to COVID-19 related lockdown. In the face of high food inflation, supply chain bottlenecks and Pak Rupee depreciation, the company’s cost optimization and prudent sales mix enabled its gross profit to grow by 22 percent year-on-year with GP margin of 13.48 percent in 2020.
The company kept a check on its distribution expense and administrative expense which inched down by 0.48 percent and 7.35 percent respectively in 2020. Other expense also plummeted by 28.21 percent year-on-year as the company didn’t book any provision for the culling of biological assets and didn’t incur any loss on the death/disposal of its biological assets in 2020.
The operating performance was further buttressed by other income which enlarged by 32.32 percent year-on-year in 2020 on the back of gain on the disposal of biological assets and operating assets as well as amortization of government grant on long-term finances.
All these factors contributed to boosting the operating profit by 1142.81 percent in 2020 with OP margin jumping up to 3.41 percent. Finance cost posted marginal 1.41 percent rise in 2020.Monetary easing during the year owing to COVID-19 resulted in reduced financial obligations. FCEPL recorded net profit of Rs.176.93 million in 2020 with NP margin of 0.40 percent. The company posted EPS of Rs.0.23 in 2020.
2021 proved to be an incredible year for FCEPL as its topline surpassed the strategic target of Rs.50 billion to clock in at Rs.52.094 billion reflecting year-on-year rise of 17.98 percent. The sales growth was the result of record-breaking sales volume attained by the company in both dairy and frozen dessert segments despite cutthroat competition from the existing and fresh entrants in the industry. Despite high inflation, the company managed to register a 48.46 percent rise year-on-year in its gross profit which pushed GP margin to an unprecedented level of 16.96 percent in 2021.
Operating expenses which were abridged for quite some time took a high jump in 2021. Distribution expense grew by 24.38 percent on the back of high advertising and promotion budget, outward freight charges, travelling and communication charges as well as salaries of sales force. Administrative expense also posted a year-on-year rise of 14.57 percent in 2021.
Huge provisioning done for WWF and WPPF pushed other expense up by 77.68 percent in 2021 while other income also magnified by 45.62 percent. The main growth propellers for other income were changes in fair value of biological assets, gain on disposal of operating assets, scrap sales as well as a considerable increase in interest on bank deposits.
Operating profit climbed up by 128.46 percent in 2021 with OP margin mounting to 6.61 percent. Finance cost declined by 30.47 percent in 2021 due to downward revision in discount rate. The bottomline posted a stunning growth of 919.68 percent year-on-year in 2021 to clock in at Rs.1804.08 million with NP margin of 3.46 percent. EPS stood at Rs.2.35 in 2021.
The growth trajectory continued in 2022 whereby FCEPL delivered 41 percent year-on-year growth in topline which was recorded at Rs.73,473.69. This wasbacked by robust volumes, improved sales mix and expansion in retail footprint. Devastating floods in the southern region of the country, Pak Rupee depreciation, dwindling foreign exchange reserves, commodity super cycle as well as record high inflation and political instability drove up the prices of raw materials, resulting in 41.86 percent year-on-year rise in cost of sales in 2022.
Despite that, gross profit grew by 37 percent year-on-year, however, GP margin slightly tumbled to clock in at 16.48 percent in 2022. Operating expense climbed up by 30 percent year-on-year in 2022. Higher profitability resulted in higher provisioning for WPPF in 2022. Moreover, FCEPL booked provisions on culling of biological assets.
This drove other expense up by 41.85 percent in 2022. Other income also enlarged by 66 percent on the back of changes in the fair value of biological assets as well as profit on saving account deposits. Operating profit enlarged by 54.89 percent in 2022 with OP margin of 7.26 percent.
Finance magnified by 60.18 percent on the back of multiple rounds of monetary tightening during the year. This diluted the growth momentum of bottomline whichnonetheless rose by 36.67 percent in 2022 to clock in at Rs.2,465.67 million with NP margin of 3.36 percent. EPS clocked in at Rs.3.22 in 2022.
In 2023, FCEPL’s posted 36.42 percent year-on-year rise in its topline which clocked in at Rs.100,235.40 million. This was on account of improved sales volume, better pricing and enhanced retail presence across the nation. High inflation, supply chain disruptions and weaker local currency pushed down GP margin to 14.37 percent in 2023.
This was despite 19 percent year-on-year growth in gross profit during the year. Distribution expense mounted by 31.12 percent in 2023 mainly on account of elevated freight charges and hefty advertising & promotion budget allocated for the year.
Administrative expense inched up by 8.75 percent in 2023 on account of higher payroll expense. This was despite workforce rationalization to bring down the headcount to 1262 employees in 2023 from 1271 employees in 2022. Other expense slid by 20.96 percent in 2023 due to lesser profit related provisioning, reduced provisioning done for the culling of biological assets and no exchange loss incurred during the year.
Other income strengthened by 29.48 percent in 2023 mainly due to gain arising from changes in the fair value of biological assets. Operating profit improved by 14.76 percent in 2023 with OP margin sliding down to 6.10 percent. Finance cost surged by 126.63 percent in 2023 due to monetary tightening. Net profit shrank by 38.81 percent to clock in at Rs.1508.786 million in 2023 with EPS of Rs.1.97 and NP margin of 1.51 percent.
In 2024, FCEPL posted year-on-year uptick of 6.80 percent in its topline which clocked in at Rs.107,051.5 million. During the year, the company’s sales volume tumbled by 3 percent due to the imposition of 18 percent sales tax on packaged UHT milk in July 2024.
This led to 3.68 percent downtick recorded in the actual production for the year with capacity utilization clocking in at 52.54 percent versus capacity utilization of 63.58 percent recorded in the previous year. Cost of sales ticked up by 4.89 percent in 2024, however, with upward price revision and cost optimization, the company was able to drive up its GP margin to 15.91 percent with 18.18 percent growth recorded in its gross profitability.
Higher outward freight and salaries of sales force resulted in 6.54 percent uptick in distribution expense in 2024. FCEPL streamlined its workforce from 1262 employees in 2023 to 1165 employees in 2024. This resulted in 2.52 percent lower administrative expense in 2024. Other expense surged by 59.85 percent in 2024 due to higher provisioning done for WWF, WPPF and culling of biological assets.
Besides, the company also recorded greater loss on the disposal of biological assets in 2024. Considerably lower gain recorded from changes in the fair value of biological assets resulted in 71.80 percent slide in other income in 2024. Operating profit grew by 11.73 percent in 2024 with OP margin slightly picking up to clock in at 6.38 percent.
The onset of monetary easing during the year resulted in a minor growth of 4.23 percent in finance cost. Net profit improved by 46 percent to clock in at Rs.2203.128 million in 2024. This translated into EPS of Rs.2.87 and NP margin of 2 percent in 2024.
Recent Performance (1QCY25)
Dairy segment constituted over 91 percent of the company’s revenue proceeds as of March 31, 2025. Hence, the imposition of 18 percent sales tax on packaged UHT milk continued to take its toll on the sales volume and resulted in 5.27 percent deterioration in FCEPL’s topline which was recorded at Rs.26,015.514 million. Frozen dessert segment posted a momentous growth of 67.70 percent to clock in at Rs.2,280 million during the quarter due to Eid factor, however, couldn’t produce much difference in the net revenue due to its thinner contribution in the sales mix.
The company continued its cost optimization measures which resulted in 7.77 percent growth in gross profitability and GP margin clocking in at 18.25 in 1QCY25 versus GP margin of 16 percent recorded in 1QCY24. Lower sales volume coupled with the stability in the fuel prices resulted in 13.50 percent lower distribution expense during the quarter. However, administrative expense surged by 23.27 percent in 1QCY25.
Higher provisioning done for WWF, WPPF and culling of biological assets appears to have driven other expense up by 123.97 percent in 1QCY25. Lower discount rate cut down the profits on the company’s short-term investments. This pushed down other income by 58.24 percent in 1QCY25.
Operating profit picked up by 12.76 percent in 1QCY25 with OP margin recorded at 8.54 percent versus OP margin of 7.18 percent recorded during the same period last year. Finance cost slumped by 53.19 percent during the quarter due to better working capital management and lower discount rate. FCEPL registered 63.18 percent stronger net profit to the tune of Rs.1084.78 million in 1QCY25. This translated into EPS of Rs.1.42 in 1QCY25 versus EPS of Rs.0.87 recorded in 1QCY24. NP margin strengthened from 2.42 percent in 1QCY24 to 4.17 percent in 1QCY25.
Future Outlook
Regulatory bottlenecks including the imposition of sales tax on the packaged milk will continue to pose challenges to the financial health of FCEPL. However, with better sales mix, retail expansion, price revisions to match the hike in the prices of raw materials as well as cost efficiencies across the value chain, the company is expected to sail through storms. The company has also been expanding in the export market to drive better financial results.