FCEPL: Lower finance costs drive earnings

February 08, 2022 (MLN): FrieslandCampina Engro Pakistan Limited (FCEPL) (previously Engro Foods Limited) has reported net profits of Rs1.80 billion for the year ended December 31, 2021, registering a whopping ten-fold jump when compared to profits of Rs176mn reported in the calendar year 2020, the company's filing on PSX showed today.

This has translated into earnings per share (EPS)-basic and diluted of Rs2.35 during CY21 against EPS of Rs0.23 in CY20.

This robust increase in profitability was on the back of a reduction in finance cost by 30.5% YoY which resulted from a reduction in the rate of borrowing and effective management of working capital.

During the period under review, the company witnessed an 18% YoY jump in revenue that clocked in at Rs52bn on an account of leveraging new channels and ensuring the availability of products along with increased investment in brands.

The upsurge in net revenue was led by strong volumetric growth in all categories – particularly Olpers, complemented by strong marketing campaigns on conversion awareness and a narrowing delta vs. loose milk.

While the business operating environment remained challenging due to PKR depreciation against the USD and rising commodity prices. Nevertheless, the company had been able to navigate through this environment by increasing overall sales volume along with driving value accretive brands that improve the mix.

The company also continued its focused effort on saving initiatives across the value chain that leverage the margins. Resultantly, the gross margins of the company expanded by 3ppts to 17% in the said period.

On the cost front, the distribution and marketing expenses surged by 24.4% YoY, administrative expenses by 14.6% YoY, and other expenses by around 78% YoY during CY21. This was compensated by a 30.5% YoY reduction in finance cost amid a lower interest rate regime.

As per the financial statement, the company paid an income tax of Rs776mn, up by 8x YoY as opposed to the tax of Rs90.75mn paid in CY20.

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