Corporate results: Nestle Pakistan posts healthy profit, up 35%

Reports earnings of Rs7.9b compared to Rs5.8b during 2013.

KARACHI: On the back of strong volumetric growth, Nestle Pakistan boosted its earnings by more than a third to almost Rs8 billion in calendar year 2014, according to a notice posted to the Karachi Stock Exchange on Thursday.

The Pakistani subsidiary of the world’s largest food and consumer goods company reported an after tax profit of Rs7.9 billion or Rs175 per share in 2014, up 35% when compared to Rs5.8 billion or Rs137 per share it earned during 2013.

The Swiss foods giant saw its revenues, for the period under review, increase by 12% to Rs96.4 billion compared to Rs86.2 billion it grossed in the previous year.

The company also announced an interim cash dividend of Rs90 per share for the year, which is in addition to the interim cash dividend already paid at Rs30 per share, the notification said.

Most market analysts don’t actively cover Nestle Pakistan because it is not a liquid stock, it is, therefore, hard to find expert analysis on its financial performance. However, the market analyst, The Express Tribune spoke to, said the results were good.

“The growth in the company’s profitability is certainly volume-driven while price increase also played in. Moreover, the other income helped boost their profits significantly,” said Khurram Shehzad, Director Investment Strategy at Arif Habib Group.

It’s a good result overall because for a company as big as Nestle, it is impressive to report a 12% growth in volumes, Shehzad said. Inflation is on the declining side for the last three months or so and this reduction in prices helped increase people’s purchasing power, which indeed helped Nestle improve its volumes, he said.

However, the margins remained almost flat indicating the price increase wasn’t entirely passed on to the consumers, Shehzad said – the company’s gross margins stood at 28.3% in 2014, up slightly compared to 28% in the corresponding year.

It may be recalled that internationally, Nestle moved from volume-based strategy to margin-based strategy, which is why they increased prices last year, according to market analysts. The latest results, however, show the profits were driven by volumes and not the margin.

Published in The Express Tribune, February 20^th,  2015.

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