Fauji Foods : Financial Results for the year ended December 31, 2022

Brief Commentary FFL 2022 Results

FFL achieved 44% growth in net revenue for the year 2022. This was driven by 66% increase in Nurpur UHT milk volume, doubling the institutional sales and distribution increase of 57%. This growth was a result of increased marketing investment, distribution automation, and leveraging group synergies.

Inflationary pressure on the back of devaluation, floods, and macro-economic uncertainty resulted in a 50% increase in raw milk price and other major cost components. That in turn, eroded the margins by circa 7% in Q2.

Management responded by a) increasing prices and b) deploying cost saving initiatives. Consequently, the margins were fully restored in Q4. The volume growth, complimented by pricing and efficiency initiatives, delivered a Q4 EBIDTA of PKR 383mn (PKR 77mn excluding one-time sales tax reversal), a 262% growth over Q3.

Quarterly EBITDA 2022 (PKR mn)

383

								77
(156)	(143)			(71)
	(181)	(237)
				(308)
		Q1 2022	Q2	2022	Q3 2022	Q4 2022
		Reported EBITDA (PKR mn)		Quarterly sales tax adjusted EBITDA (PKR mn)

The loss after tax was PKR 2.17 Bn. The interest cost of PKR 1.26 bn constitutes 58% of the loss. The sponsors have committed to inject equity of PKR 11.71 billion via Other than Rights Share. This will eliminate the debt overhang and rid the business of the interest cost that is a drag on company's performance.

Looking ahead the management expects the growth momentum to carry on in '23. Key efficiency initiatives of cheaper energy mix (solar and bio fuel), localized packaging and optimized processes are expected to yield savings of approximately PKR 1 bn in 2023. The Q1 equity injection shall eliminate the debt of PKR 8 bn, removing the burden of interest cost on the business. All these factors make for a strong start to 2023. We remain confident that going forward, we will build upon the current positive trajectory.