Shezan Q2 2024 sees third worst quarter since 2020

Economic headwinds coupled with high financing cost take a toll on the bottom line of the F&B giant

Shezan International Limited, a key player in Pakistan’s food and beverage sector, has recently disclosed its financial report for the second quarter of 2024, revealing a challenging period characterized by a notable decline in sales and overall net profit. This downturn marks the third worst quarter for the company since 2020, with a loss of Rs 204 million, following the setbacks faced during the peak of the COVID-19 pandemic.

The quarterly figures spanning back to 2019 illustrate a consistent trend of subdued performance during the second quarter, which falls between September and December. This seasonally slow period aligns with the colder weather, impacting the demand for beverages like juices, which are core products for Shezan. Notably, the recent quarter’s loss ranks third in severity since 2019, with only Q2 and Q3 of 2020 surpassing it, reflecting the unprecedented challenges posed by the pandemic.

A report by Profit Magazine highlighted a recurring pattern of decreased sales during the second quarters of 2021 to 2023. This trend correlates with the winter season, during which consumer demand for Shezan’s popular products, such as bottled juices and tetra packs, tends to diminish. Conversely, the quarters ending in March, June, and to some extent, September, typically witness an upswing in sales, driven by more favorable weather conditions stimulating consumer demand.

Comparing the two quarters of 2024 reveals a substantial decline in sales from Rs 2.1 million in Q1 to Rs 1.4 million in Q2, accompanied by a corresponding decrease in gross profit from Rs 438 million to Rs 226 million. Consequently, the net profit margin plummeted from -1.3% to -14.8% between the two quarters. However, the data over the years suggest that despite losses in the second quarter, Shezan tends to recover in subsequent quarters, offsetting the annual net profit, with the exception of 2020, when the pandemic severely impacted operations.

While the company reported a profit of Rs 113 million in 2019, it faced a significant downturn in 2020, resulting in a loss of Rs 235 million. Subsequent years saw gradual recovery, with profits of Rs 123 million and Rs 80 million in 2021 and 2022, respectively, albeit still below the 2019 level. However, 2023 saw a marginal net profit of only Rs 38 million, indicating ongoing challenges in maintaining profitability.

One persistent issue contributing to Shezan’s financial struggles is the escalating finance costs, which have surged from Rs 68 million in 2019 to Rs 280 million in 2023. This rise has eroded the net profit margin, dropping from 1.5% in 2019 to 0.4% in 2023, underscoring the adverse impact of mounting financial obligations on overall profitability.

Looking ahead, the forecast for Q3 2024 suggests continued pressure on profitability, as sales have declined over the past six months while administrative expenses have risen from Rs 92 million in Q1 to Rs 101 million in Q2.. Despite relatively stable finance costs between Q1 and Q2 from Rs 85 million to Rs 80 million, the significant net loss incurred during this period of Rs 28 million and Rs 204 million is expected to weigh on the upcoming quarter’s net profit.

In its 2023 annual report, Shezan attributed its financial challenges to economic downturns, regulatory changes, such as the imposition of excise duty, and inflationary trends. However, despite these headwinds, the company’s annual sales trajectory has shown resilience, increasing from Rs 7.7 billion in 2019 to Rs 8.7 billion in 2023. Moreover, gross profit witnessed steady growth, rising from Rs 1.5 billion in 2019 to Rs 2 billion in 2023, indicating underlying strength in operational performance amidst challenging market conditions. 

Saneela Jawad
Saneela Jawad
The author is a staff member. She tweets at @SaneelaJawad Email: [email protected]

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