National Food is Pakistan's leading multi category food company with around 250 different products in 12 categories. It is the forerunner of the concept of hygienically packed spices, handy and quick-prepare recipes mixes in Pakistan.
Even though, multiple brands have entered into the market since 1970, but National Foods still relishes the leading market share in the country's spice and condiment business. Exported to many countries across North America, Africa, the Middle East and many other regions, NATF has also captured a noticeable share of global market of readymade spices over the years.
The company also holds ISO 9001, ISO 22000, and HACCP certifications along with SAP business technology to drive the company's strong commitment to quality and management excellence. Similarly, National food also attained another landmark of improvement in the long term credit rating from A + to AA- by JCR-VIS.
Pages from historical performance:
National Foods has invested competitively and strategically in their brands over the years. This investment has kept rewarding them and the company has seen continued improvement in its top line. From sales of Rs4490 million in FY10 the firm's top line clocked in at Rs9725 million in FY14 - a 14 percent year-on-year growth over FY13, where sales volume alone contributed 9 percent to growth. The major contributors to this growth were recipe mix and ketchup categories. Both contributed to 17 percent and 20 percent growth in sales.
After, a very disappointing performance in FY10 due to low economic growth and high inflation in the country, National Foods has improved its performance significantly over the last four years. While the firm's gross profit margin was little improved in FY14 - at 35.05 percent as against 34.61 percent in FY13 - it has improved significantly over FY12. Similarly, net margins have also improved tremendously during the last five financial years.
Although the major chuck of National's sales still comes from domestic market, their international division made a contribution of about 9 percent to their top line. During FY14 the company exported Rs1178 million worth of goods to markets in the US, Canada, Middle East, Europe and Africa.
National Foods has a firm brand portfolio and effective marketing activities, and operational excellence helped it to maintain a robust financial performance. However, the company also faces higher cost and volatility in raw material prices in the international market. Similarly, the energy crisis has put significant pressure on the firm's cost of production. Yet, even with all these issues the company has been showcasing its strong market presence as well as the ability to pass on the prices to the end consumer.
The firm's administrative cost rose marginally in FY14, rising about 50 basis points year-on-year as percentage of sales. The major increase has come from the employees salary increase, on account of inflation adjustments. Similarly, there is a slight increase in both distribution and finance cost. The company received a significant boost to its bottom line in FY14 as its operating income rose on the back of exchange rate gains.
Furthermore, National Foods have done well with regards to its short term obligations and liquidity issues. Its working capital ratio is adequately under 2.0 over the years, and the quick ratio also stands passably under safe parameters.
1HFY15 performance:
For the half year ended December 2014, National's sales improved 21 percent year-on-year. This is not surprising from the result we have seen since last four years. It is worth mentioning here that the firm's exports dropped from 7.27 percent of total sales in 1HFY14 to 6.7 percent in 1HFY15. The company took advantage of stability in exchange rates and reduction in fuel prices. During last six months, the company recorded a higher growth in all key categories, including recipes and ketchup.
However, the half year saw a 14 percent year-on-year increase in cost of sales, due to which its gross margins in 1HFY15 dropped by about 170 basis points. The company blames the higher cost of raw material and agriculture crops, especially red chilli which is the single most important ingredient in all of their recipes.
National Foods is very clear about its business direction and the path they want to take. This is evident from their investment in brand building which they have doing continuously since last five fiscal years. These investments on the brands continued over half year 2015. NATF has invested heavily in marketing campaigns like "National ke saath har din khaas" and "Ketchup Zaroori".
Furthermore, they are starting "Asli te Khalis" targeting the rural population and multi food grade iodized salt with zinc and folic acid, aimed at improving health of women and children. Additionally, campaigns like "National ka Pakistan" are an attempt to continue on their legacy to celebrate the rich heritage, culture and breathtaking landscape of Pakistan. These are not only brilliant marketing pitches, but also they create goodwill and brand loyalty, which is very important in FMCG sector.
National Foods (NATF) has done well at the Karachi Stock Exchange. During the period under consideration, the firm split its shares by decreasing its face value from Rs10 per share to Rs5 per share. As a result the number of shares in authorised capital increased from 75 million ordinary shares of Rs10 each to 150 million ordinary shares of Rs5 each, and consequently the firm's stock price fell sharply between late November 2014 and mid-December 2014.
Future outlook:
There is a widespread consensus among the analyst community that the long term demand for readymade spices and other food items will receive further boost thanks to rising female population in working force and increasing urbanisation. In addition, the hard-hitting marketing campaigns and continues brand loyalty will create further openings for the company.
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National Foods Limited (Rs '000)
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Rs (mn) 1HFY14 1HFY15 chg
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Sales 4,588 5,545 21%
Cost of sales 2,894 3,291 14%
Gross profit 1,695 1,954 15%
Gross margin 36.9% 35.2%
Distribution cost 928 1,025 10%
Administrative expenses 175 226 29%
Other expenses 43 59 36%
Other income 48 55 15%
Operating Profit 596 698 17%
Operating margin 13.0% 12.6%
Finance cost 44 22 -51%
Taxation 186 214 15%
Profit after Tax 366 462 26%
Net margin 8.0% 8.3%
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Source: Company accounts