Pakistan: Engro to sell North America meat and food business

By Shahid Shah – The News

Engro-Food-logo-640x480KARACHI: Engro Foods Limited (EFOODS) is selling its North American business including meat business company Al-Safa Halal and Engro Foods Canada Limited, a senior company executive told the News on Friday.

Faiz Chapra, company secretary of Engro Foods, said Engro Foods Limited held 100 percent of the shares in Engro Foods Netherlands BV, which in turn was the 100 percent shareholder of Engro Foods Canada Limited.

“Engro Foods Netherlands has entered into a share purchase agreement with a Canadian registered company for the sale of its North American businesses, which included Engro Foods Canada Limited,” he said. “Subject to satisfaction of all conditions precedent as set out in the share purchase agreement, it is expected that the transaction shall complete on or around 31st October 2014.”

As a result of such sale, the pre-tax loss that would be recorded and reflected in Engro Food Limited’s financial statement during the third quarter would be approximately Rs475 million, Chapra said.

Engro Foods Canada posted loss of CAD 670,000 (Rs61.2 million) in first half 2014. “As a result of this sale, we expect EFOODS to post onetime loss of Rs236 million (31 paisa per share) in third quarter of 2014 assuming after tax loss of Rs475 million from Engro Foods Canada selloff,” said Zeeshan Afzal, an analyst at Topline Securities. “However, future earnings would improve by 6-7 percent (EPS impact 15-20 paisa ) due to absence of loss making arm.”

Topline revised EFOODS 2014 EPS to six rupees, down 50 percent from earlier estimates. “If company got the tax benefit for the third quarter of 2014 EPS would improve by 19 paisa per share from our estimates,” Afzal said. “However, 2015 EPS is likely to improve to Rs2.65 from earlier estimate of Rs2.48.”

The stock is trading at 2014E PE of 190.7x while 2015F PE is 41.9x. “In spite of earnings revision we maintain ‘Sell’ on the company as reported in our report titled ‘EFOODS: Downgraded to Sell’ dated ‘Aug 07, 2014’,” he added.

Engro Foods Limited had announced earnings of Rs329.14 million during the half year ended June 2014 down 70 percent against Rs1.11 billion corresponding period last year. The EPS of the company declined to 43 paisa in the first half this year against Rs1.46 last year.

Prior to establishment of Engro Foods Canada Limited the group had acquired Al-Safa Halal, a leading Halal meat brand of North America, which would also be sold.

An Engro Foods spokesman said that their global venture Engro Foods Canada Ltd and its subsidiary Engro Foods USA, LLC had given them the distinct advantage of being Pakistan’s first local conglomerate to explore the world’s fastest growing consumer segment and acquire a top quality international meat brand.

One analyst said since Engro Foods was not getting benefits from the Engro Foods Canada Limited, decision of the sale was made.

The spokesman said they believed that given the tight economic situation in their home country and increasing competition on global markets, a portfolio review of the company was an essential element to ensure that they remained competitive and continued to deliver on their vision in the best possible manner.

“The divestiture of the Engro Foods business in Canada is a strategic decision and the company will continue to explore further growth alternatives in future,” he said. The decision to sell Engro Foods Canada Limited has been brought about by a realignment of strategic aspirations of Engro Foods for its global growth opportunities and an increased focus on its core business area.

The spokesman said that the company was not disclosing the value of its undersell businesses, as they were being sold to private parties.