Foreign food makers post robust earnings despite challenges

KARACHI: Despite political instability and unprecedented energy and interest rates amid skyrocketing inflation, foreign food item manufacturers posted robust sales in the first half of 2024.

While some consumers boycotted soft drinks and milk products from reputed foreign multinational companies (MNCs) in Pakistan to protest the killings of Palestinians in Gaza by Israeli forces since October 2023, the results suggest that consumers have not significantly boycotted locally produced food items made in joint ventures with foreign MNCs.

The exact volume of goods sold was not immediately disclosed, as manufacturers typically do not report quantities in their financial statements. However, market insiders believe higher prices contributed significantly to the impressive sales figures for food items.

Friesland Campina Engro Pakistan’s (FCEPL) revenue increased to Rs55 billion for the half year ending June 30, 2024, up from Rs47bn in the same period last year. However, its profit-after-tax declined by six per cent to Rs1.25bn from Rs1.32bn, primarily due to a substantial rise in interest rates.

Results show joint venture food products escape consumer boycott

FCEPL’s frozen dessert segment reported a revenue of Rs6.16bn, up by 13pc year-on-year. Its dairy-based segment reported a revenue of Rs48.87bn, reflecting a growth of 18pc over the same period in 2023.

Through the Finance Bill 2024, the government has introduced an 18pc sales tax on packaged milk, leading to a significant price hike. This increase will further strain consumers’ already declining purchasing power. The tax disparity has widened the gap between packaged milk and untaxed, unregulated loose milk.

Nestle Pakistan Ltd (NPL) reported a 6.2pc increase in sales for the half year ended June 30, reaching Rs107.7bn over the same period last year. The company attributed the growth to broad-based brand expansion, supported by demand-generating activities and a favourable portfolio mix. However, its gross profit margin declined due to rising commodity and energy prices, while increased brand investments further impacted operating profit. Consequently, net profit decreased by 8.34pc to Rs10bn from Rs11bn.

NPL said various taxes introduced in the budget for FY25 have affected its operations. The company is assessing the impact on its business performance and future growth prospects.

Furthermore, NPL anticipates high commodity and input costs will continue to prevail for the rest of the year. In light of these factors, Nestle Pakistan maintains “a cautious outlook and will take necessary measures to manage this challenging environment”.

Unilever Pakistan Foods Limited’s (UPFL) net sales plunged by 9.3pc to Rs17bn during the six months ending June 30 from Rs18.7 in the same period last year, followed by a drop of 26.7pc in profit to Rs3.8bn from Rs5.2bn.

Double-digit inflation in the last two years on the back of a steep rise in electricity tariffs and petroleum prices has impacted the purchasing power of consumers, particularly for non-essential commodities like instant noodles, in favour of essential supplies, UBFL said. However, macroeconomic indicators are showing signs of relative stability with the expected revival of the IMF programme and related government measures.

The softening of inflation indicators supports the overall consumer sentiment. However, the impact of budgetary measures to increase revenue generation may impact consumers’ purchasing power further. UPFL anticipates a gradual recovery of demand for the company’s non-discretionary portfolio.

Colgate Palmolive Pakistan Ltd posted a net turnover of Rs113bn in January-June against Rs119.6bn in the last fiscal year. Its profit-after-tax soared to Rs17bn from Rs10.4bn.

Ismail Industries Ltd recorded impressive sales of Rs131.3bn for the full fiscal year ended June 30 from Rs100.6bn during the previous fiscal year. However, its profit shrank to Rs4.9bn from Rs5.89bn.

Fauji Foods Ltd posted a Rs337m profit after tax during the first half compared to a loss of Rs147m in the same period last year. Its sales rose 14.6pc to Rs11bn from Rs9.9bn.

Published in Dawn, September 1st, 2024