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Engro Foods (EFOODS) is one of the major FMCG companies in Pakistan. The company came into being under the umbrella of Engro Corporation in 2005. It is a publicly traded company and listed at KSE. The company is engaged in the manufacturing, processing and marketing of dairy products, ice cream, frozen desserts and fruit juices. It has established several brands that have already become household names in Pakistan such as Olper's, Tarang, Dairy Omung, Omung Lassi, Olper's Lite and Omore, amongst others.

Financial performance during 2012-13: EFOODS has shown a set of mixed annual results in the market over the years. However, things started a change in 2012 when the company posted a 35 percent revenue growth and clocked in its highest ever annual profit of Rs 2.6 billion since CY10.

However, the higher volumetric sale during 2012 was a blessing in disguise. The company's existing distribution networks had not been designed effectively to facilitate higher volumes. The company was in the process of rapid expansion, but the distribution network was creating a problem for the company. It was the primary reason that why EFOODS suffered a significant decline in profits of 92 percent during 2013.

CY14 Snapshot:

The company announced 2014, a recovery year. But, up until the end of third quarter of CY14 the company saw a decline in its profits primarily because the company saw a loss on the sale of its business arm in Canada and Unites States. The market was attaching a 'sell call' with EFOODS. However, the company had a surprise in store that forced the market to change to a 'buy call'. company reported a profit of Rs 890 million for the year 2014 as compared to Rs 211 million in 2013. Similarly, the company saw its top line grow by 14 percent year-on-year, and the company reported an earning of Rs 890 million for the year 2014 as compared to Rs 211 million in 2013.

In CY14, the company was able to solve the issues related to distribution channels and was able to expand its distribution networks. The resolution of the distribution issues was the major step company needed to get back on its feet. It was primarily due to the resolve in the system of distribution that helps EFOODS saw a revival in its dairy segment. The segment had witnessed a 22 percent year-on-year volumetric growth, where the Olpers and Tarang posted a major growth in sales.

The core cost of the company observed an increase largely due to higher milk prices during CY14. The higher milk prices were actually the main reason why the margin for the company declined during the year. But, for EFOODS margins always have been an issue largely because of the nature of the business company is doing. During CY14 the gross margin decreased to 19 percent from the high of 22 percent in CY13. However, the market share of EFOODS stands well over 50 percent and growing in the sector.

CY15 so far: 1QCY15: It seems that EFOODS has decided from the start of 2015 that they will not let market direct them. The company once again continues its tradition of beating all the market expectations and recorded the highest-ever quarterly profit for the first quarter of 2015 in its history. For the first quarter, the sales grew by 25 percent year-on-year. The bottom line for the company improved 396 percent in year-on-year comparison.

Along with improved distribution networks, company also received quite a significant help from the collapse in the global commodity markets. The international market has helped the company on account of the historic collapse in international powdered milk prices, lower local milk procurement costs and decreased fuel prices.

1HCY15: The momentum that was started in the first quarter by EFOODS continued in the first half of 2015. The company once again took advantage of lowest prices in powdered milk and domestic milk procurement prices. During the 1HCY15, average milk powder prices remained at $2,618 per ton compared to $4,342 per ton in the first half of 2014. Engro Foods once again performed strongly on account of volumetric sale and reported a top line of 24 percent year-on-year. The profits recorded nearly Rs 2 billion in the first half of 2015.

Dairy and dairy related beverage segment witnessed a volumetric growth of 25 percent. During the half year period, the dairy segment reported highest ever top line of Rs 23 billion registering a growth of 27 percent versus the same period last year. Ice cream segment that started performing well in 2014 continued its progress and reported a volumetric growth of 11 percent versus the same period last year. The dairy farm segment of the company reported the profit of Rs 18 million in the first half of the year largely due to the impact of animal valuation and better yield. Last year at the same period dairy farm segment reported a loss of Rs 10 million.

According to the company reports the statistics from A.C. Nielsen shows that as of May 2015 the market share of EFOODS UHT milk segment stands at 55 percent. In 2011 and 2012 and 2013 the market share was 44 percent, 51 percent and 51 percent respectively.





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Engro Foods LTD

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Rs (mn) 1HCY14 1HCY15 YoY

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Net sales 20,100 24,898 24%

Cost of sales 16,016 18,366 15%

Gross Profit 4,075 6,532 60%

Distribution and

marketing expenses 2,351 2,599 11%

Administrative expenses 724 583 -20%

Other operating expenses 53 211 295%

Other income 97 134 38%

Operating profit 1,043 3,273 214%

Finance costs 610 539 -12%

Profit before taxation 433 2,734 531%

Taxation 104 757 630%

Profit for the year 329 1,977 501%

EPS(RS) 0.43 2.58

Gross profit margin 20% 26% UP 600 BPS

Operating profit margin 5% 13% UP 800 BPS

Net profit margin 2% 8% UP 600 BPS

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Source: Company Accounts

Copyright Business Recorder, 2015


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