2007-2008 is considered to be an important phase for Mitchell's as it stands for major modernisation era for the company during which most of its production lines were upgraded. The company has divided its product line into two categories: Grocery products and Confectionary products. Grocery range includes jam & jellies, squashes & syrups, ketchups and sauces, canned food, fruit drinks, pickles and vinegar, ready to cook and ready to eat products. The confectionery product range has two broad ranges of products, one being chocolates and the other being sugar confectionery. Since MFFL has its own farms, it is fully integrated company. The company also has dairy business. Originally, dairy was launched as a welfare project. This idea was to provide pure, fresh milk to staff at subsidized cost. At present, the company has 85 Friesian cows, imported from Australia and it aims to expand the herd size to up to 200 cows.
In recent years Mitchell's has also become a serious player in the export sector with its worldwide exports to over 20 countries, including the UK, USA, Canada, Middle-East and South-West Asia. In 2017, the company was presented with the Best Export Brand Trophy 2017 by the Lahore Chamber of Commerce and Industry (LCCI).
Pattern of shareholding A significant part of the company is held by the directors, CEOs and their family members. Out of the 57.13 percent shareholding, Syed Mohammed Mehdi Mohsin, the chairman of the company holds over 34 percent as on 30 September, 2017. 27 percent of the MFFL's shares are held by the general public locally. A complete breakdown of the shareholding pattern can be seen in the illustration.
Past financial performance Over the years, MFFL has seen its earnings trot downwards in the negative zone, where sales also depict a slowdown in growth rate over the years. However, 2017 saw a turnaround in revenues. The company's gross margins have remained quite stable over the last 4-5 years. The culprit has been the finance cost (on borrowings) that has eaten away net margins since 2014. This can also be seen in the firms rising debt to equity and debt to asset ratios.
The company's financial year ends on September 30. In 2014, MFFL's overall grocery sales registered double digit growth in several product categories amid tough times of slow economic growth, continuing energy crises, political uncertainties etc. However, confectionery sales suffered during the year, which the management considers to have come from the company's decision to discontinue the very low priced items in that year that adversely affected volumes sold in that category.
Overall, the sales revenue of the firm posted a decline of around 7 percent year-on-year, while the gross profit margins improved, showing that growth in other categories with higher operating margins compensated for much of the decline in low priced confectionery items. For 2014, finance cost and depreciation came from the new pulping plant and boiler. The company made two important investments during the year: Fruit Pulping Line and Coal fired Boiler.
In 2015, overall sales registered a decline of over 13 percent year-on-year, and the company points towards congestion of trade pipelines in the semi urban areas and a fierce fight for shelf space in the modern trade of bigger towns and cities as a key hindrance for its distributors. It also highlights that strong discounts and lower prices of its competitors at the trade level impacted the sales of high quality premium priced grocery products. The company's exports registered a handsome increase of 19 percent year-on-year where the introduction of mango pulp in cans from the new fruit pulping line to the European and North American Markets made a difference. During the year, MFFL also invested in new equipment to enhance productivity through greater automation.
2016 was another challenging year for MFFL and this time the profits dipped into negative. The sales revenue registered a marginal decline of one percent this time as the groceries category contributed with a growth of 9 percent, while the confectionery category suffered a setback of 11 percent year-on-year decline in volumes. Strong trade promotions and price reductions by competitors, particularly by the unorganised sector were the key factors that restricted growth in the confectionery business. The company's export business also suffered in 2016, with particular damage coming from Saudi Arabia because of continuously decreasing in oil prices.
2017 and beyond 2017 saw a turnaround in sales revenue and the firm posted a growth in revenues of around 13 percent for the year. The company highlights its efforts in reinforcing the brand at consumer level as a key boosting factor. This time both the grocery and confectionery categories posted volumetric growth, and MFFL was able to revive demand of its confectionery products by offering competitive pricing and new products to the trade.
According to the latest financial reports, the grocery and confectionery categories grew by 10 and 6 percent, respectively. Squashes and syrups combined, remained the leader in groceries segment posting a growth of 31 percent, followed by preserves that grew by 9 percent year-on-year. Chocolate category leads the confectionery segment with a growth of 13 percent in 2017 versus 2016.
With 2017 improvements, MFFL hopes for better times in the coming years. It has been engaging in various promotional activities vital for bringing growth in secondary market ie the retail sales. The firm's exports also improved staggeringly with 14 percent growth in 2017.
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Mitchell's Fruit Farms Limited
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Rs(mn) 2017 2016 YoY
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Sales 1,891 1,679 13%
Cost of sales 1,435 1,286 12%
Gross Profit 456 393 16%
Administrative Expenses 120 104 15%
Distribution and Marketing Exp 317 261 22%
Other Operating Exp 1 2 -38%
Other Income 13 19 -29%
Profit from Operations 31 45 -31%
Finance Cost 42 43 -2%
(Loss)/Profit before tax -11 2
Taxation 20 14 39%
(Loss) after tax -31 -12 155%
Loss per share (Rs) -3.92 -1.54 155%
Gross margin 24.13% 23.41%
Operating margin 1.64% 2.68%
Net margin -1.63% -0.72%
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Source: Company Accounts
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Pattern of Shareholding at Mitchell's Fruit Farms
(as at September30, 2017)
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Categories of shareholders Share
percentage
held
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Directors, Chief Executive Officers,
and their spouse and minor children 57.13%
Associated Companies, undertakings
and related parties 0.00%
NIT and ICP 0.00%
Banks Development Financial Institutions,
Non Banking Financial Institutions 0.22%
Insurance Companies 3.85%
Modarabas and Mutual Funds 10.33%
General Public
Local 27.21%
Foreign 0.00%
Joint Stock Companies 0.43%
Pension Funds 0.82%
Others 0.03%
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Source: Company Accounts
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Mitchell's Fruit Farms Limited (Financial Ratios)
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2013 2014 2015 2016 2017
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Profitability & Return
Return on assets % 14.31 7.67 1.98 -0.86 -1.97
Return on equity % 25.47 18.56 4.73 -2.24 -6.16
Return on capital employed % 32.04 17.86 8.88 6.52 4.69
Interest cover Times 11.65 4.1 1.53 1.05 0.74
Gross profit margin % 25.79 26.8 23.8 23.41 24.13
Net profit margin % 6.35 5.52 1.6 -0.72 -1.63
Liquidity
Current ratio Times 1.81 1.36 1.24 1.01 0.96
Quick Ratio Times 0.67 0.58 0.65 0.49 0.47
Financial Gearing
Debt-Equity Ratio Times 0.78 1.42 1.39 1.62 2.12
Debt to Assets % 43.81 58.7 58.14 61.77 67.95
Capital Efficiency
Debtor turnover Days 10 18 24 26 40
Inventory turnover Days 77 104 88 107 105
Creditor turnover Days 44 43 47 40 68
Operating Cycle Days 43 79 65 93 77
Fixed assets turnover ratio Times 5.3 2.84 2.44 2.47 2.69
Total assets turnover Times 2.25 1.39 1.24 1.19 1.21
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Source: Company Accounts