Corporate results : Nestlé earnings go up 10.5% on better margins

Published: February 17, 2016
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Profit rises to Rs8.8b in year ended December 2015. PHOTO: FILE

Profit rises to Rs8.8b in year ended December 2015. PHOTO: FILE

KARACHI: Improved margins helped Nestlé Pakistan boost its net earnings by more than one-tenth to Rs8.8 billion in financial year ended December 31, 2015, the company’s results revealed on Tuesday.

The Pakistani subsidiary of the world’s largest food company reported a net profit of Rs8.76 billion or Rs193.18 per share for 2015, up 10.5% when compared with Rs7.92 billion or Rs174.85 per share it earned in 2014.

With the results, the company also declared a cash dividend of Rs90 per share, which was in addition to an interim cash dividend of Rs100 per share already paid to the shareholders.

Unlike its local rival Engro Foods, the Swiss food giant is usually off the radar of market analysts for not being a liquid stock. The company has a very small free float (the number of shares available in the market for trading), majority of which are held by foreign buyers. It is, therefore, difficult to find analysts’ comments and market reaction to the earnings announcement.

However, Taurus Securities Head of Research Zeeshan Afzal said the results were slightly below his expectations.

Though Engro Foods’ results had already hinted at a declining trend in the dairy sector, Nestlé’s results were still lower than what was expected, Afzal said. The company’s earnings per share (EPS) from the first to fourth quarter in 2015 stood at Rs81, Rs55.8, Rs32.6 and Rs23.8, respectively.

Despite a slow fourth quarter, the performance for the year remained relatively better mainly because of a strong first half. Gross profit margins improved by 480 basis points to 33.1% in 2015 compared to 28.3% in the previous year, leading to the growth in earnings.

Besides improved margins, an increase in turnover also supported the bottom line. Nestlé saw its revenues rise by 6.76% to Rs103 billion compared to Rs96 billion in the previous year.

“Dairy dynamics were excellent in the first half of 2015,” Afzal said, explaining international milk prices had dropped to Rs47 per litre, which brought down raw material costs. The decline in imported milk prices gave dairy producers bargaining power by putting local prices under pressure.

However, the latest quarter was generally a slow-growth period for the entire dairy sector, Afzal said. In the tea whitener segment, Everyday, one of the company’s core products, came under pressure from competition, such as Engro Foods’ Tarang and CupShup, a new tea whitener launched by Dalda Foods.

Published in The Express Tribune, February 17th,  2016.

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