Corporate results: Engro Foods switches from loss to profit in Dec quarter

Revenues swell on volumetric growth of Olper’s and Tarang.

Engro Foods reported almost flat profits for 2014 compared to last year, according to the company’s latest financial report, which was released on Monday.

The local food giant, however, showed a significant improvement in its volumes and reported net profit on a quarterly basis compared to a loss in the corresponding period of previous year.

A subsidiary of Engro Corp – Pakistan’s largest private-sector conglomerate – the company reported an after-tax profit of Rs868 million or Rs1.13 per share during calendar year 2014, an almost flat result compared to Rs870 million or Rs1.14 per share in the previous year.

However, the company’s quarterly performance was much better. It reported a net profit of Rs616 million or Rs0.81 per share in the last quarter of 2014 compared to a loss of Rs370 million or Rs0.49 per share in the same quarter last year.

Revenues for the year clocked up Rs43.4 billion, up 14% compared to Rs38 billion it grossed in 2013.

Higher volumetric sales of Olper’s and Tarang inflated the revenues, Taurus Securities said in a report.

Engro Foods is selling its flagship product Olper’s at a 5% to 10% discount with respect to its closest competitor, Nestle Milk Pak, the report said. The discount campaign for Tarang is resulting in higher volumes in the winter season, it added. The results were better than what the market had expected, according to Topline Securities, pushing the stock up 5%. The company’s share was trading at Rs126.9 when the market opened and traded at Rs133.2 at the end of business on Monday.

The company showed stable results as it resolved the distribution issues, causing its distribution expenses to decline to Rs4.7 billion in 2014 compared to Rs5 billion a year earlier, Topline said in a report. However, gross margins dipped to 18.7% from 21.6% in 2013, Topline said. As a result, operating margins declined by 71 basis points to 5% in 2014 compared to 5.7% in the corresponding period of 2013.

Other than that, it said 59% higher finance cost and onetime loss on sale of foreign business (Alsafa Foods) resulted in 51% fall in profits.

During the fourth quarter of 2014, the company earned record revenue of Rs12.4 billion, up 13.6% on a quarter-on-quarter (QoQ) basis and 25.2% on a year-on-year (YoY) basis, Taurus Securities said.

Gross margins for the quarter also improved to 19.2%, from 15.1% of the last quarter on the back of availability of quality milk in dairy flush season and falling procurement costs, it said.

Moreover, the report said falling marketing and distribution expenses pushed up the company’s operating profit by 875% on QoQ basis to Rs838 million in the last quarter of 2014.

Further impetus to the profits came from easing other expenses with realisation of tax income of Rs22 million due to availability of tax credit.

Published in The Express Tribune, January 27^th,  2015.

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