EngroFoods raise its profit margins by 3.5 percentage points to 28% due to higher prices in the dairy and ice-cream segment. PHOTO: FILE
Engro Foods posted its results for the first half of calendar year 2013, registering a profit of Rs1.1 billion, up 9% from Rs1 billion in the corresponding period last year. However profits for the quarter ended June 30 2013 were at Rs460 million, down from Rs531 million for the corresponding period last year.
EngroFoods, currently a major player in the dairy sector, is the cash-cow for Engro Corp ever since its fertiliser operations fell into disarray. The company has seen aggressive growth since its creation in 2006, however increased market saturation and rising inflation has crowded out the market.
Net sales fell to Rs18.9 billion for the half year period, down 4% from Rs19.7 billion for the corresponding period last year, due to problems in the distribution network. According to BMA Capital’s Farid Aliani, EngroFoods faced a setback when the company’s key distributors wound up operations earlier this year, resulting in a decline in sales.
Despite a fall in sales, distribution and marketing expenses rose to Rs2.6 billion from Rs2.4 billion last year while administrative expenses rose to Rs550 million from Rs473 million. However EngroFoods was able to raise profit margins by 3.5 percentage points to 28% due to higher prices in the dairy and ice-cream segment.
“Improvement in earnings is mainly on account of 3.5ppt improvement in gross margins and lower taxation. Further, a 9% uptick in selling expenses to Rs2.6bn also affected the bottom line,” said Zeeshan Afzal of Topline Securities.
Lowered interest rates brought finance costs down to Rs397 million for the half year period, down from Rs440 million previously while a reduced effective tax rate lowered tax costs to Rs454 million from Rs518 million, aiding bottom line growth.
Slowdown
Despite improved half yearly results, the company showed declining income on a quarterly basis as profits in the quarter ended June 30 2013 fell to Rs460 million from Rs531 million last year, a 13% drop, driven mostly by a 7% drop in sales to Rs9.3 billion, while other income fell a massive 92% to Rs8 million from Rs106 million in the previous year.
As a result the company posted Earnings per Share of Rs0.60 for the quarter ended June 30 2013, down 29% compared to the previous quarter and 13% compared to the corresponding quarter last year. In comparison Earnings per Share for the half year period ended June 30 2013 were Rs1.45, up 9% from Rs1.33 in the corresponding period last year.
The company is currently in the process of constructing a powdered milk plant to further expand its product line. The plant is expected to come online in 2014.
“Though the result is below our initial earnings estimates, we believe that the company will be back on the growth track after commencement of its new powder milk plan,” said Zeeshan Afzal of Topline Securities.
EngroFoods recently went through an unexpected leadership change as Sarfaraz Rehman took the seat of Chief Executive Officer back from Afnan Ashan. Sarfaraz was in charge of the company since its inception and steered the company through its first six years which saw it established as a major market player. Though Sarfaraz’s returned was well received by investors the sudden departure by Afnan Ahsan cast doubts over the company which is already facing problems with retaining talent.
Published in The Express Tribune, July 31st, 2013.
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what is EPS of half 2013 ?
The resumption of Mr Sarfaraz Rehman to the CEO position is welcome. Engo and Pakistan's food sector is not yet to the Food Safety Standards. We can see very well what happened in China with infant formula milk dairy products contaminated with Melamine. China was bold to punish to the defaulters to eliminate. Being the world biggest consumer of dairy products, cheese, yogurts, infant formula milk etc., Engro should enable itself to first enter the Chinese market with its products as part of our bilateral trade agreements as PTA/FTA. Pakistan has to learn from the traditional cultures of production, milking, storge, processing, to be based on mechanisation, on scientific lines than cultural and traditional role. The GCC region is looking for food safety, and in process of acquisition has acquired cattle farming ranches as far as Brazil, Argentine, India etc., etc. Pakistan is not in the least consideration of any joint venture, acquisition etc., despite the genuine Organic Milk, and related products. We can genuinely enter in the infant formula, baby food market for the domestic market provided we understand Pro-biotic, bacteria, and other effecting and application for safety of food. I may possibly assist Engro in the scientific quality control to overcome QC issues, and help safe food to the consumers of Pakistan and beyond.