Corporate results: Nestle posts a flat profit

Higher costs and distribution eat up some of the gains.

KARACHI:

Despite boosting its revenues by almost one-tenth, Nestle Pakistan posted flat profits as higher distribution and finance costs ate up some of the gains provided by higher gross profit in the calendar year (CY) 2013.

The foods giant announced its annual results for CY2013 on Thursday, reporting an after-tax profit of Rs5.87 billion or Rs129.37 per share, a meagre increase of 0.04% when compared with Rs5.86 billion or Rs129.32 per share it earned in CY2012.

Though its 2013 revenues increased by 9% to Rs86 billion compared with Rs79 billion of the corresponding year, a high distribution and selling expenses coupled with an increase in the company’s finance cost offset most of its earnings.

The announcement, however, was accompanied by a cash dividend of Rs75 per share for the year ending December, 2013 – this was in addition to the interim dividend of Rs50 per share already paid by the company.

“One of the main factors that ate up their profit was an increase in their distribution and selling expenses,” Topline Securities’ Senior Manager Research Zeeshan Afzal said. “Though a small number, an increased finance cost also affected the bottom line,” he said – the growth rate for Nestle Pakistan’s distribution and selling expenses was 22%, while finance cost was up by 15.6% in CY2013.

An overall slowdown in consumer demand, prevailing law and order situation and inflation – especially in the second half of the year – also played in, the analyst said. The inflation rate was recorded at 5.1% in May and rose to 10.9% in November before slipping to 9.2% in December, according to trading economics.com.

It is not a bad result overall, Afzal, the analyst said. Some numbers indicate that they are on the recovery path. Their sales have increased by 9% while gross profit margin also increased by more than 12%, he said.

Published in The Express Tribune, February 21^st, 2014.

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