It was way back in 1980-81 when Shezan established a separate plant in Karachi eyeing export demand of its product and the demand in Sindh. Shezan has a juice factory in Hatter, Khyber- Pakhtunkhwa and a bottle filling plant in Lahore which has increased its productivity significantly. Shezan also owns and operates an independent Tetra Brik plant. The firm's head office is located in Lahore and has distribution offices in United Kingdom and Canada.
Financial performance:
Shezan has shown a mediocre performance in the six months ended December 2014. Facing significant competition from other producers like Engro and Nestle domestically, Shezan's 1HFY15 top line only grew 3.73 percent which is sub-par compared to the peer average top line growth.
Shezan's gross profits too have seen better days but in 1HY15 it eased by 164 basis points year-on-year to 28.8 percent. The company hasn't given any specific details in its directors report expect for saying that energy crisis in Pakistan is playing havoc on the business. The directors say that Shezan has had to rely on furnace oil for boilers in the absence of gas and diesel to run the generators due to electricity shortages, which added to the company's cost of production.
Segment wise reporting shows that the firm's juice and drinks business that contributes about 85 percent of its total sales saw margins drop in the first half ending December 2014. The gross margins of juice and drinks segment fell to 30.5 percent in 1HFY15 from 32.33 percent in the corresponding period last year.
In contrast, the other business segment that makes products likes pickles, ketchup, sauces, jams, squashes and syrups saw margins grow from 18.4 percent in 1HFY14 to 19.6 percent in the first half ending December 2014. However, since juices and drinks forms the bulk of top line, the drop in margins in that segment weighed down overall profitability as a result of which the gross profit was down by nearly 2 percent.
Down towards the bottom line, the company didn't fare any better. SHEZ is continuously facing stiff competition not only with Engro and Nestle in its juice and beverage division but companies like Mitchell's are also giving it run for its money in jam and chutney sector. This has forced the firm to spend heavily on distribution and promotion expense according to the company documents.
While the firm's distribution and administration expense remained little changed from last year, its expenses under this head have averaged about 20 percent in the last seven years. Compared to the distribution and administration expense of other listed food firms, whose expenditure under these heads range between 10-15 percent of sales, speaks volume about the troubles the company has been facing.
In an attempt to deal with these threats, the company is trying to get its feet wet in the export market. From an export of Rs267 million in FY12 - that made up only 4 percent of its total sales - the firm's exports grew to Rs570 million in FY13 and Rs946 million - or 11 percent of total top line - in FY14.
The firm has not disclosed its export number in its results for the first half ended December 2014, but its directors say that the firm as achieved "encouraging growth" in the export of juice products. "Exports during the six month period were higher as compared to the corresponding period of year 2013," the director's report for 1HFY15 said.
The directors say that the firm's production facility at Karachi continued to meet the export requirements in Middle East, Africa and Europe and performed well during the quarter ended December 2014. "We are optimistic that our products have export potential to sustain our growth momentum in the future. We are endeavouring to capture business opportunities in the emerging export markets to expand our export," they added.
Future outlook:
Shezan is a well established brand and it has been able to keep its footprints strong. Regardless of economic issues in the country, Shezan is a food producing business and so there is always bright light at the end of the tunnel for food business. Shezan has two aspects to its business. One is the juice and beverage and the other is jams, ketchup and souses. Although they are facing strong competition from top brands domestically but their exports are growing. However, Shezan also needs to promote ketchup and sauces sector and needs to learn how to tap the growing demand of these consumer items in the wake of growing urbanisation in Pakistan.
Despite low sales the outlook for SHEZ remains positive. The firm remained largely on track despite the increase in its distribution cost. By focusing on its export sales, the firm can withstand some of the domestic pressures it faces from the competition given by the local companies. Beside this the company is expanding and upgrading its infrastructure to meet rising demands of exports.
"The company initiated upgrading and expanding infrastructure to meet rising demands as well as to position itself for future growth. Notably, a new Tetra Pak filling machine for Hattar unit has been installed in February 2015. Its commissioning will improve production and economies of scale as well. We hope that the new capital investment will improve performance and increase the production capacity to fulfil market demands," the company said in its latest director's report.
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Shezan International
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Rs (000) 1HYF15 1HFY14 Chg
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Sales 3,204.9 3,090 3.7%
Cost of sales 2,281.5 2,149 6.2%
Gross profit 923.3 941 -1.8%
Gross margin 28.8% 30.4% down 164 bps
Admin expense 101.0 105 -4.1%
Distribution cost 589.4 573 2.9%
Other operating expenses 76.6 71 7.8%
Operating Profit 184.3 218 -15.5%
Finance cost 26.5 13 104.4%
Proft after tax 110.3 130 -15.2%
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Source: Company accounts