Optimistic: Engro foods CEO declares 2014 as ‘comeback year’

The company is on path of recovery, says Rehman

KARACHI:

After a dismal performance in the last 18 months, Engro Foods seems to be heading towards recovery and may even be back in business by the end of 2014 —at least according to its chief executive officer Sarfaraz A Rehman.

Though market analysts surveyed by The Express Tribune have low expectations about the company’s earnings for the current financial year, the chief of the local foods giant – a subsidiary of Pakistan’s largest private-sector conglomerate Engro Corp – said the recent growth trend is encouraging and the company will make a comeback this year.



The first nine months of 2013 were disastrous due to problems in the company’s distribution network, Rehman acknowledged. He, however, added the company was able to fix its distribution infrastructure by May this year. “We have fixed it from the perspective of long-term growth.”

The CEO said during the second half of 2013, the company focused increasingly on rebuilding its distribution network and improving its milk collection process, which yielded positive results and enabled them to regain their market position.

“The second half of 2014 will be good in terms of volumetric growth,” Rehman said. However, he acknowledged a good second half might not be enough to turn things around.

Engro Foods faced severe criticism from shareholders as well as media for its poor performance in 2013 – its revenues for the year were down 5.7% to Rs38 billion compared to Rs40 billion it grossed in the preceding year. The company reported an after-tax profit of Rs211 million in 2013, down by a staggering 92% compared to Rs2.6 billion in 2012.

A near collapse of its distribution system coupled with declining margins dented its earnings last year. But despite fixing its infrastructure, the company could not fully recover from that state – which was clearly reflected in its performance in the first half of the current financial year.

The maker of Tarang and Olper’s reported an after-tax profit of Rs329 million during the six-month period ending on June 30, 2014, a 70% decrease compared to Rs1.1 billion in the corresponding period last year.

“We have fixed our distribution and milk collection system. The latest results were primarily a reflection of low margins, which is something we need to fix now,” Rehman said. Additionally, he said there was also a slowdown across the consumer goods sector as witnessed by most FMCGs. Something has gone wrong somewhere, he said.

Engro Foods’ revenues for the first half of 2014 increased to Rs19.9 billion, up 5% over Rs18.9 billion for the corresponding period of 2013 but margins declined on the other hand – the company’s gross profit margins decreased to 19.6% in the six-month period, an 8% decrease from 27% as of 2013.

“Declining margin has been an issue but we cannot increase prices abruptly because of the market’s competitive nature,” Rehman said.

He said milk prices in international market increased in early 2013, and corresponded to an increase in local prices, which has a long-term impact on their business as they use imported powdered-milk for products other than milk.

However, Rehman said prices were down again during the last couple of months. “You will see its impact in the coming months as our margins will improve,” he said.



The CEO said the April-July period was worse in terms of sales growth but post-August 15 the sales shot up again. “If the recent growth trend continues through December, we will be back in business,” he said.

“The only thing we have not done yet is to improve our margins but that, too, will happen by the end of this year and I see good sales growth next year.

Published in The Express Tribune, September 17^th, 2014.

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