THE corporate food industry is in a state of growth, with the increase in average revenue being in excess of 25 per cent last year. This growth is based on market penetration of largely urban areas and some export markets.

With deeper penetration countrywide, the sector has enormous potential for growth and can contribute more than the current 20 per cent of manufacturing GDP.

Emerging trends now point towards investment in value-added processing, albeit on different levels in the various sub-sectors of this industry. Major primary production consists of cereal grains (rice, maize, wheat, and barley), sugarcane, various fruits and vegetables, marine and freshwater seafood, meat, and dairy products. However, the value-added food processing industry deals with a narrower range of products.

Traditionally, food processing largely consisted of milling units for sugar, rice, and wheat where packaging was basic and for bulk quantities. The food industry operates with the participation of farmers, herders, fishermen, labourers, etc.

Most of the participants on the primary level of production are self-employed persons (such as farmers and fishermen), small businesses, and large landholders, along with a few corporations.

As the bulk of producers do not engage at the primary level, this increases the role of middlemen and, thus, the supply chain for these products becomes longer, adding a slightly higher cost to retail prices.

The bulk of food businesses are either small and medium organizations, or private limited companies. Publicly-listed food companies consist largely of sugar mills. The analysis being presented here is based on the functioning of publicly listed food corporations.

The companies chosen for consideration include Clover Pakistan, Engro Foods, National Foods, and Unilever Foods.

Clover Pakistan was involved in the manufacture and sale of food products, with its leading product being Tang, a powdered drink formula. However, the company recently sold assets related to the manufacture, marketing, and sale of Tang to Kraft Foods Pakistan Limited, retaining distribution for a transitional period.

Clover’s financials have displayed steady growth. Growth has been accounted for both, 2011 and 2012, with the latter’s figures being considered an outlier due to the sale of Tang’s assets. The company has recorded average annual revenue growth of 13.99 per cent from 2005 to 2011, with negative growth recorded in 2012 due to sale of assets.

The company’s average PAT margin is 5.63 per cent for the period between 2005 to 2011, however the company has experienced declining profitability, with the ratio dropping from 10.7 per cent in 2005 to 0.37 percent in 2009. However, the ratio regained momentum 2010 onwards. The company has also maintained a good liquidity position, with an average current ratio of 1.9x for the same period. Current ratio for 2012 stood at 4.88x.

Till 2011, Clover’s debt to equity ratio was kept below one, and in 2012, with the sale of Tang’s assets, the ratio came further down to 0.2x.

Engro Foods Limited (EFL) was established in 2005, and is the newest entrant in our analysis. The company’s first venture was in the dairy market, with milk products like Olpers and Tarang, later moving into milk and fruit beverages, and the ice cream market.

The company further leapt into the halal foods industry, by acquiring a leading meat brand in North America, Al Safa.

EFL has displayed growth consistently, with revenue growth of 53 per cent in 2011, and growth clocked in at 31 per cent till the third quarter of 2012. The company turned its first Profit After Tax in 2010, and has recorded average annual PAT growth in excess of 100 per cent since then. PAT grew more than 400 per cent in 2011, and has already grown 142 per cent by the third quarter of 2012. Gross Profit Margin has grown consistently, from 7.19 per cent in 2007 to 22.20 per cent in 2012, while PAT margin has grown from a loss of -17.5 per cent in 2007 to 5.51 per cent in 2012. While the company is highly leveraged, Long Term Debt to Equity stands at 43.7 per cent.

National Foods Limited, the third company in our analysis, is one of Pakistan’s oldest food conglomerates. They have a wide product offering, ranging from pre-mixed recipe spices, salts, table spices, sauces, pickles to packaged rice.

The company’s performance has remained consistent, and in 2012 it took off its long term debt from the balance sheet. National Foods sales grew by 29.85 per cent in 2012, while profit after tax grew by 111.2 per cent year-on-year.

Concurrently, the company’s GP margin ratio stood 32.52 per cent for the last year. PAT margins shows an average of 4.74 per cent, while the ratio took a hit in 2009 and 2010, while the company rebounded last year recording the figure at 8.14 per cent.

The company’s profitability shows a healthy pattern, with revenue growth of almost 30 per cent in FY2012 over the previous year, while net profit growth was recorded at 111 per cent for the same period.

Unilever Foods Pakistan, also has very wide penetration in the domestic retail food market. Beginning with its takeover of Rafhan Foods, the company’s product offering has widened to include pre-mixed desserts, Knorr’s ready-foods, and Energile drinks. The company also caters to the halal food market.

The company’s profitability and growth show consistency, with revenue growth of 22 per cent in 2011 over the previous year. GP margin stood at 39 per cent, with a 6-year average of 38 per cent. PAT margins averaged 9.86 per cent, but with medium variability. However, the company’s return on equity averaged 93.6 per cent, with the same being 125 per cent for the 2011.

The company’s liquidity position eroded year-on-year, however, reduced to 0.88 in 2011 compared to 1.09 in 2010. Their quick ratio also shows a reduction, down to 0.36 from 0.51 in the previous year.

The company has also reduced its financial leverage gradually, down from 0.64x in 2007 to 0.16x in 2011.