Ayesha Mudassar

National Foods Limited (NATF), the country’s leading food manufacturer, experienced a decline of 40% and 48%, respectively, in before-and-after-tax profits during the nine months of the last fiscal year 2023-24 compared to the corresponding period of FY23, according to WealthPK.

The company posted a pre-tax profit of Rs1.5 billion and a post-tax profit of Rs982.4 million in 9MFY24. The lower profit was mainly due to the high finance costs incurred on loans for strategic investments in the Faisalabad production facility. The company’s net sales stood at Rs28.5 billion in 9MFY24 compared to Rs21.8 billion in 9MFY23, representing a 31% increase. Furthermore, the cost of sales also surged by 39% during the period under review. On the expense side, the distribution and administrative costs escalated by 13% and 34%, respectively, signifying high inflation and soaring freight charges.

Six years at a glance (2018-23)

Financial performance

Despite challenging economic conditions, NATF has consistently improved its financial performance since 2018, as evidenced by the constant rise of its top and bottom lines. Notably, the company’s margins have followed a cyclical pattern. After a three-year decline, the gross profit (GP) margin rebounded in 2022 and reached its peak in 2023. Conversely, the net profit margins (NP) initially increased in 2019 but declined in 2020 and 2021.

In 2019, NATF’s top line posted a modest increase of 3%. However, rising inflation and the depreciation of the rupee resulted in a 4% smaller gross profit, with the GP margin falling from 34.4% in 2018 to 32.0% in 2019. The net profit stood at Rs1.09 billion in 2019, with an earnings per share of Rs7.31. In 2020, the company continued to sustain and posted a moderate 16% year-on-year (YoY) growth in its net sales. Gross profit grew by 15% YoY in 2020, but the GP margin posted a downtick and clocked in at 31.7%. NATF’s net profit for the year was Rs1.1 billion with an NP margin of 5.7%. The year 2021 fetched a 20% YoY improvement in the top line. The growth was mainly attributed to the resumption of business activities after the Covid-19 pandemic. This translated into a 15% YoY progress in gross profit, which stood at Rs7.03 billion in 2021 with a GP margin of 30.4%.

Despite numerous economic challenges, NATF achieved a 16% YoY increase in revenue in 2022. This growth was primarily driven by portfolio rationalisation, price revisions, and exchange gains on export sales. The company’s cost transformation measures along with strategic buying decisions, led to a 27% rise in gross profit. The bottom line posted a 55% YoY growth to clock in at Rs1.9 billion with an NP margin of 7.3%. In 2023, NATF registered a 10% YoY growth in net sales. This rise was mainly led by price revisions to counter high inflation, increased borrowing costs, depreciation of the rupee, and a significant rise in energy costs. Furthermore, the company’s gross profit grew by 14% in the year, with GP margin touching its peak level of 34.6%. Net profit increased by 11% YoY, totalling Rs2.1 billion with an NP margin of 7.4%.

Company description

National Foods was incorporated in Pakistan on February 19, 1970, as a private limited company under the Companies Act, 1913. It was subsequently converted into a public limited company under the Companies Ordinance, 1984 (now Companies Act, 2017). The company is principally engaged in manufacturing and selling a wide range of food products, including pickles, ketchup and desserts.

Economic environment

The country’s economy has sustained through inflationary pressures and is currently exhibiting signs of stabilisation, with recent economic indicators reflecting improvements following the completion of a short-term IMF programme. GDP is expected to grow at a rate of 2% while the inflation rate, which hovered around 30%, has reduced to 20.7% as of March 2024. The central bank has also started lowering interest rates, reflecting easing inflationary pressures. The trade deficit has been reduced by 30.18% in FY24.

Credit: INP-WealthPk