National Foods Limited (NATF) Earnings Call Transcript & Summary

Ladies and good morning. I'm hoping that voice is clear. Before we start our formal presentation and sort of introduction, I will request my team to play the recitation of Holy Quran. Ladies and gentlemen, on behalf of National Foods Limited, I would like to welcome all the participants to our online corporate briefing session 2026. Thank you for taking the time to join us today and for your continued interest in the National Foods Limited. My name is Badar Rehman. I'm the Company Secretary and Legal Counsel for the company, and I will be moderating today's session. We will begin with a presentation covering the company's financial and operational performance for the year fiscal year '26, key business developments, strategic priorities followed by question-and-answer session. Before we begin, I would request to keep the microphones is concluded. [Operator Instructions] Before we proceed, I would also like to acknowledge the members of our management team who are joining us today. We have with us our Global CEO, Mr. Abrar Hasan. There is our Deputy CEO, Mr. Hassan Sarwat; beside Mr. Hassan [indiscernible] and our Executive Director, Muhammad Hamza Hasan. With me is Mr. Badar Yousuf, our CFO; Nearby is our Head of [indiscernible], Mr. Muhammad Rafiq. Thank you all for joining us. Without further delay, I would like to invite our Global CEO, Mr. Abrar Hasan.

Everyone. A very good morning, and most of all, thank you for joining us today. My name, as Badar has introduced, is Abrar Hasan. I am the Global CEO of National Foods Limited. And I would like to welcome you all to this National Foods Financial Year 2026 Investor Briefing. I have a small note actually prepared for you before we get into the presentation, and I will try my best to limit this and encapsulate the performance of National Foods in about 10 to 15 minutes, and then we can move into the presentation and then subsequently open -- we will be open to questions. So today has one purpose to show you how this company performed in a year that tested every part of our business and how we are positioning it for what comes next. My colleagues from finance will take you through the numbers in detail. I want to set the context first, and I will be direct about the challenges because you should hear them from us before you find them in the detail. Who are we? National Foods is Pakistan's leading branded food company. We operate through 5 entities across 6 continents, sell in 55 countries and work with about 416 distributors globally. Our vision is to create food that enriches the lives of people everywhere. Our strength is in the fundamentals, a brand portfolio that Pakistani households trust, a route to market that reaches more than 110,000 outlets and a governance structure in which independent directors chair our Audit and HR and Remuneration Committees. From a longer view, since financial year 2000, our net sales have grown about 66x and profit after tax has grown about 320x. What matters more to me is how we got there. We grew this business through every cycle, the post 9/11 recovery, the balance of payment crisis, reserve depletion, the election cycle disruptions and foreign exchange shortage and inflation of financial year 2023 and not to forget the period of COVID. In each of these periods, revenues has actually grown. In fact, when I actually take a look at all these troubled times, National Foods has actually outperformed and done extremely well, especially in the trouble times. So we did not get there by borrowing from carers. We got there by protecting affordability, managing pricing and mix carefully and building capacity and procurement capabilities that made us stronger when conditions turn. So let's now get into the financial year 2026 in a summary. So financial year '26 was a strong year for the business. The group revenue rose 14% to PKR 74.3 billion on 8% volume growth. Gross margins improved by 1.9%. Operating profit grew 62% to PKR 6.1 billion. In Pakistan, we grew volume 8% and revenue 13%. Roughly PKR 3 billion of that came from pricing and PKR 5 billion from volume. That mix matters to me. It means our consumers are still choosing us, not just paying more for the same products. Operating margin rose to 14%. Commercially, recipe mixes remains the #1 brand. The ketchup category has crossed PKR 12 billion and Mayonnaise, which is a fairly recent category has crossed PKR 1 billion as well, with volume up by 45%. Our big bet on the division of creating a foodservice business has recorded its highest ever revenue. We launched 25 products this year, a record, and we also took working capital down to 65 days from 78 days a year earlier, which released cash and bet our finance cost by 24%. Before my colleagues walk through the numbers, I want to flag one thing. Our consolidated headline profit includes a onetime gain from the A1 divestment in Canada. The figure that reflects our operating businesses continuing earnings per share of PKR 25.78, up from PKR 8.15. We want you to focus on that number later on. So moving on, if we work through the shocks, I also want to be clear about what this year has cost us. A Gulf conflict and disruption at the Strait of Hormuz almost push oil above $100 a barrel, raised freight and packaging costs sharply and drove inflation to 11.1%. Our gross margins fell to 34% in the fourth quarter and our first quarter financial year '27 operating profit was 18% lower year-on-year. Our response was deliberate. We held prices through peak season to protect volume, then took calibrated price actions in the quarter 1 of financial year 2027. We locked in raw and packaging material prices, secured packaging cover through December and renegotiated distributor freight arrangements. Our first quarter gross margin has already recovered by about 1 percentage point from the fourth quarter low. Volume has grown in every quarter of financial year 2026. Demand has held and that is the foundation for the margin recovery. We also want to be transparent about one governance matter. Our Sharia screening currently meets 4 of 5 criteria. The gap arises from treasury investments made with the AMN proceeds. We are working with our Sharia advisers and the Pakistan Stock Exchange to reallocate those funds into compliant instruments and restore compliance status in Shalah, which will be done very soon. So our priorities for the coming year are clear: grow through both price and volume, restore margins to the previous 2026 levels, deepen our modern trade and route-to-market reach, invest in quality and capacity, keep the innovation pipeline strong and deploy the A1 proceeds into international growth that clears our return hurdles. Our return on capital employed is 38% against a cost of capital of 17%, and we intend to keep that discipline, if not make it better. These are not guarantees, input cost volatility, consumer demand under inflation and the recovery of our GCC and Saudi distribution are real watch points, and we will report on them honestly and transparently. With this context in front of you, I'll now hand over to our finance team, who will take you through the numbers and then the questions behind them. Thank you very much for joining us this morning.

Thank you, Abrar, and welcome to all the investors in the investor call. I'm Badar Yousuf, introduced and the CFO for the company and try and run you through the Yes. So I'll try and run you through the deck. And obviously, after that presentation, we will welcome your questions. So starting off a brief intro in terms of what the structures are for the company. We are very well aware. We have 5 entities operating in 6 continents and 55 countries. We have a vast network of distributors not only in Pakistan, but internationaly as well. In terms of our group structure, again, just a flash and a reminder, this is the structure we are operating from the APC being the Holdco and then the National Foods Limited, the associated companies and our subsidiaries, primarily [indiscernible]. Our vision creating food that enriches the lives of people everywhere that's the center point where we operate in the organization and [indiscernible]. In terms of our governance, the company takes governance matters very seriously and we want to comply with all the governance measures and letter and spirit. We have a very experienced Board with independent directors, a good constituted Audit Committee as well as HRRC, both being chaired by independent directors as well as an independent Director being part of the internal division Board as well in represent to operate very transparent consistently in a timely manner complying with all the prevailing laws and regulations of Pakistan. Just to augment that we have come through over the last 2 decades in a very turbulent times and testing times in terms of economy as well as geopolitical consent performed over the last 20 years in terms of maintaining not only the top line CAGR but also the bottom line CAGR. And the last year itself is also a good testament in terms of our resilience and to show that resilience going forward as well. Coming into the FY '26, just a few facts and figures for refresh. As we mentioned earlier, obviously, H2, we saw the GCC situation that started to impact globally as well as our region as well from the Gulf conflict and the Hormuz disruption that happened in Q3. Obviously, in the current quarter, the cost stay elevated that started from Q4 last year. And obviously, that has been further augmented in terms of the KSM escalation in July to October. Whilst we have taken certain measures for H1, obviously, H2 remains a watchout as we also mentioned previously, but we will share what we have done so far and how we are faring this period out. In terms of certain KPIs, obviously, we all know at the moment, the brent is at $115, it was at towards the end of the year, we saw the CPI going up to 11%. The policy rates now again on the backdrop of the inflation, which has gone up to 12% now while the exchange rate remains stable. In terms of the business impact, obviously, with the oil going up, the plastics and the, they took the major brunt in terms of our cost escalations. So we saw an increase in our plastics and means at meds to the tune of 30% to 45% and that obviously impacted our categories primarily that had packaging material around deals and plastics, mainly in the condiment section. Another factor which has largely impacted us and that's more relevant for our international business as well, both from an import and an export perspective is the freight that went up. So that we have seen escalations as high as 10x of the prewar situation that obviously is impacting our deliveries and the cost of service in the international markets as well. So essentially, what have we done within this last year, what is our commercial win and the business leadership that will continue to drive? In Pakistan, recipe continues to drive our business. It is the leadership extended. We have extended new variants out There. Kethcup. It is now, as we mentioned, it is PKR 12 billion in terms of our revenue, and we have got some strong volume growth going behind us. My is it has -- it has started to shine out. We have grown by about 45% volumetrically in the last year, and it has crossed the $1 billion mark as a category. And food service division is the segment that we have seen fantastic growth CAGRs over the last 3, 4 years, anything north of 30%, 35% that you're seeing as a CAGR in this division, and we continue to focus on that division for -- as a growth pillar to the organization. On the Eastern front, despite the geopolitical situations, we were able to open a few markets in the international front as well as get some mainstream retail wins when we've started to get a foot in the door that can become a growth engine for the international side as we move forward than in the future years. From the local distribution front, obviously, we have a very strong footing out here. We have crossed 100,000 outlets that we are servicing. We have 50+ distributors operating locally in different parts of the country and a good fleet of order books that are taking this business going forward. And I'm really progressing in terms of the growth that we are driving every year. Our brand is also being recognized by various awards in terms of how we are branding and how we are taking our categories forward from the consumer perspective. Another major win that we see in this year is around the working capital front. Despite these challenging times where we see that the cost of business is increasing, we have been able to optimize our working capital. And we see that over the years, our working capital cycle has optimized and this has helped us in releasing the operating cash flows in the last 2 years. Cumulatively, we see that roughly to the tune of PKR 3 billion to PKR 4 billion have been released, primarily out of the working capital optimization that we are able to drive and that has been mainly around the inventory levels that we were able to optimize. Obviously, as a result, you would see that our finance cost despite the borrowing for the Festival project, it continues to remain optimized and we see a decline in that as well. From the innovation front, as we mentioned earlier, we have our 25 launches in this year. Our [indiscernible] range is going pretty good in terms of chicken powder launch that we went through. So good innovation pipeline and onward looking from FY '27 and onwards, the pipeline remains pretty strong. Food Service division is amongst the star or the growth pillar that we see, and we have continued to drive more focus around that division. We've added new accounts in this year as well, and we will continue to focus on this division. This we see as an area which is reflective of the evolving social trends as well, and it just presents a very good opportunity of promoting and accelerating our growth as we go forward as well. In terms of how we responded to this year particularly around H2, as we mentioned, whilst this escalation was happening in H2 of the fiscal year '26, obviously, the pricing interventions in Q4 were not possible. but we had done certain pricing measures before that, and we have done certain pricing measures in Q1 of the current fiscal year. This has been done to protect our margins. That's number one. Number two, in terms of our supply chain sourcing, we have gone into long-term contracts. We have locked in contracts [indiscernible] and raw materials which has shielded us from a lot of the volatility that has been coming through, why is the costing piece does has had it hit on the P&L. In terms of the cost to service, where we have gone from some trade cost sharing with the distributor levels where we have recovered certain freight costs and shared the impacts with our business partners in these turbulent times. In terms of productivities, we gone -- we went live in the [indiscernible] of our plant in FY '24. Post that, we have never looked behind, and we have been improving our productivities year-on-year from that plant. And we have seen improvements in our variable costs in our fixed cost absorption with the volumes coming in and through the productivity, we have been able to counter the inflationary impact and not passing on the entire in station on to the consumers, thus managing the consumer expectations as well. Obviously, in terms of the balance sheet, with the optimization of the working capital and the gearing ratios, which are very healthy right now and rather have a good headroom for us to progress forward -- we've been able to unlock funds so that we are able to invest behind our capability of production and the technology of production. So that we will continue to drive going forward as well. So even from the balance sheet perspective, we started a pretty healthy situation to take our aspirations as we go forward into the current year. So in terms of our financials, as we announced and as we mentioned earlier, -- the growth from the top line has been at 14% with a good 8% volume metric growth. So that is a very decent balance in terms of how we are growing from over metrics as well as pricing perspective. and protecting our gross margins as well. So we improved our margins in FY '26 by 2 percentage points, and we closed at 38%. Our operating profitability and that's purely from our core operations has grown by 62%, and that's a very important metric to keep in context that the continue the core operations of the company continues to progress in a very healthy manner. Our EPS primarily from these running operations have gone 3x from the last year from PKR 8 to PKR 25, and that's coming purely from the coal operations. Yes, there has been a onetime transaction where we have been able to create value out of the divestment from the 1 investment that we had. And obviously, there is an impact on the bottom line, a positive impact on the bottom line. And we posted an EPS of PKR 111 for the FY '26. Obviously, it's a onetime event, but we draw confidence from the fact that even our core operations have delivered strong performance for FY '26. When we look at the National Foods entity, start alone from a Pakistan perspective, again, the same standard performance continues to showcase over 13% top line growth and a 44% operating profitability growth with an EPS growing again from PKR 13 to PKR 24, that's a 78% increase in our standard of EPS, keeping in context that we gave a dividend including the final one of PKR 30 per share. That's a 124% payout from a stand-alone financial perspective and an 8% dividend yield from the share price perspective. So both from the company's performance as well as shareholder return perspective, the company did a pretty decent job for the last year. In terms of our investment perspective, just a flash in terms of our key ratios from an investor lens, what we see is 2 important things. One, as Abrar has mentioned, the return on capital employed is pretty healthy in terms of 38%, whilst we see our cost of capital [indiscernible] 17%. So we see that the return that we're entering out of the business versus the cost of that capital is a pretty -- there is a significant headroom around that. Obviously, we do see that in terms of our price to earnings, we are operating in 18 multiple recent times, market situation, this has gone down as well. But this is something where from an industry average perspective, we do see that there is a discount that the sharing operating right now. So now the more important question is that is there in terms of our Q4 performance, and we've announced our results for Q1 as well, and we wanted to briefly touch on that as well. So few important problems. Number one, this business is a very seasonal business. We do see that there are 2 important seasons that come across, and that balloons the revenue for those particular quarters from the yearly evolution perspective. And as a result, when we look at numbers from quarter versus the previous quarter, there is a certain depth or a class that we see quarter-on-quarter. However, what is important to look at is that even with those seasonal impacts, how does each quarter perform versus the last year? So if you look at the chart on the top left corner on the revenue, what we see consistently is a double-digit growth in the revenue quarter on quarter. Whilst Q4 may seem as a dip versus Q3, but it has increased by 10% even from the quarter 4 of the last year. And even the quarter 1 of FY '27 has grown by 14% versus the last year. So our growth trajectory quarter-on-quarter has been consistent, and it reflects the ups and downs reflects the seasonality of the business that we are in. Even in terms of the whole last year, quarter-on-quarter, we have been posting growth on the EPS perspective, barring aside the Q1 which I'll just explain, and we have already we already know that it's coming out of the gross margin decline that has come across in Q4 of the last year. When we talk about the gross margins, we do see that quarter-on-quarter Quarter 3 FY '26, we were posting a gross margin of 39%, which went down to 34% in Q4, and we already started to see recoveries in Q1. So there is a 1% increase already that has been posted in Q1. And our expectation is that we will be -- this role to retape will continue at a fast pace in the rest of the quarters. And in the upcoming quarters, you would see better margins going forward as well. So primarily from a 3-month reserve perspective, it's been the margins that has caused the EPS to decline. The growth continues to come across and fuel the top line for the business. So the business strength spend there. As we mentioned earlier, from a Sharia compliance perspective, it's the noncompliant investments over total assets. That's the only over end that we are reaching right now based on the investments that we have done internationally. As Abrar also mentioned, we are in coordination with the Sharia advisers. And hopefully, very soon, based on reallocation of our investments, we will be back on track to come with all the price criteria of the Sharia compliance. Last but not the least, while we are delivering on the financial side, we have not put an oversight in terms of our social environmental responsibility. And as for the prior years as well, we continue to invest in the society, giving it back to the society. And we feel that it is our responsibility to give back to the strategy as well. And a lot of programs from the [indiscernible] to the Child life support we have been doing various activities around the year to give that to the society as well. I'll just end with this last slide where we see that what we mentioned earlier as well that we are focused for the coming years. It is very clear. We want to grow with a balanced price and volume growth, not titted on 1 side altogether. We want to restore our margins back to the '26 levels. Our go-to-market is strong and we'll continue to capitalize on that. Our strong balance sheet gives us the leverage and the capacity to invest behind quality, capacity and innovation, and we will continue to do that. We have a strong innovation pipeline and our target is to pull throught in a very, very strong way in this year and the years to come. And obviously, from placements of the proceeds, we have -- we are aiming to invest them in the right -- with the right strategy in place. So these are primarily the going-forward points. The only watch out point just as a last reminder that H2, based on the geopolitical situation, as we see the situation coming, we will continue to keep an eye on it, strategize accordingly, but that's the volatility that we all should be aware of going forward is met. So that's the end of the presentation. Happy to take your questions, and we are here to address them.

[Operator Instructions] So we'll start with Ahsan.

So I have 3 questions and 1 comment. So number one, the growth that you have put in and the story that National Food presents in the market is really commendable and investors really value and appreciate it. So -- on the growth side, your growth, you aim to post double digit. [Foreign Language] because there are 3 ways that you can grow. And if -- there are more ways you can grow. So please enlighten us. So 1 is the categories that you're already present in in the category growth like ketchup, Mionis, pickles and condiments. Category growth plus your market share, I'm sure the volumes -- the kind of volumes that you're posting, I hope, assumed to increasing your market share. And the new markets or the new categories that you're going in. So total TAM in terms of [Foreign Language]

Thank you ask me the question. So like Abrar and Badar mentioned, we grew by around 8% last year. But the year before last, also, we grew by around 8% to 9% volume. So there is consistent growth in the last -- volumetric growth in the last couple of years. Now coming to your question directly on the source of both -- so primarily, what we witnessed over the last 2, 3 years is that we are slowly and gradually gaining share within our core categories. So recipe mixes, I can happily tell you that we've gained share by around 200 bps in the last 1 year. Pickle, we already are in a very high share at part because within brand pickepical around 70%, still we've gained 100 bps share within pickle. And Ketchup up again, we are gaining share in certain geographies overall. So we are -- so that's 1 part. The other part is that the pie is set in certain categories are growing is growing, like, for example, sauces, monies, like what Abrar mentioned, either look at those categories where we see tailwinds because of change in consumption patterns. So that's why the category itself is showing a high growth, and we are growing along with the category while we're gaining share in both these and [indiscernible]center. So that's the major source of growth as we speak today. But like we mentioned earlier, there are -- we see that going into the future, certain innovations, category extensions and potential entry into new categories, either through greenfield or brownfield projects will actually open new avenues. And that's what we are planning and strategizing for as we move forward.

So if I can add, Jason, and I think it's a very good question. First of all, actually, obviously, it's been more than 52, 53 years since the company's existence. The company has evolved, obviously, because when it started out, it was a very small company. It didn't have much wealth actually built into it. I think today, we actually have an excellent balance sheet. We have a lot of headroom. We have financial capabilities, a very low gearing ratio. So the company has become very aggressive actually in pursuing CapEx. So there is a lot of modernization, a lot of upgradation actually as far as technology is concerned. But at the same time, actually, there is -- the tire management actually has been focused on creating, let's say, new directionality for the company. this new directionality in the shape of a strategy, new strategy is going to be availed to the Board on 11th of November in a special strategy board meeting. So this entire the next 5 years map has actually already been backed out. And all these questions along with new innovations, new areas of growth have been identified. There may be -- it has led us to question quite a bit our 52 years of evolution as a lot of stuff actually had to be questioned in terms of the longevity of these things to survive. So obviously, -- like any progressive companies, the new strategy is quite bold while it will preserve the core categories, but a lot of trailing categories may not exist. And they may be replaced by actually a lot of identified new avenues, especially in line with how the demographics have changed, but Gen Z and Gen Alpha also actually come into we need to develop products actually, especially for the. Food service is something that clearly we -- there was a big bet for us, and that bet has come through. because there has been a great explosion of QSR actually between the landscape of Pakistan and continues to evolve. And we have geared and separated our production to cater specifically over there. So I think the company, from a futuristic perspective and the pillars of growth in terms of the core, the futuristic and now, obviously, a complete paradigm shift in terms of what has come through a strategy document. I think we have very safely addressed all these issues and in color you will see. The results would be hopefully stable, if not [indiscernible].

My second question is on -- if you look at globally [Foreign Language]. As when generics going to the emerging markets. So taste change your. If you look at global companies, General Mills, Campbell Soup, Kraft Heinz, Kadra brands, if you study them on cap, [Foreign Language] changing, right, because of how they consume GLP. So are you looking at some impacts or the starting of these impacts in Pakistani market as well? And in terms of your product portfolio, would you be a beneficiary of the changing taste [Foreign Language] negative impact of when you will have to do R&D and innovate to cope up with the changing taste and smell of these users of these medicines?

Okay. Excellent. Again, a very excellent question by you. Obviously, we have -- we are very much aware of this thing. And in fact, just last week, actually, I was in the center of excellence, actually reviewing the entire new product range, which has been developed because this was in line with the strategy that has been presented. And we specifically talked about this thing is the changing phenomenon. I think [indiscernible] all this particular stuff actually is on the horizon. Pakistan is actually not far behind, Pakistan has also adopted this particular thing. So I think we're already there. So this is actually causing us to question that our focus in terms of the new development and new products needs to be on a very high nutrition base. We need to be aware of how we change our nutritional approach actually towards our consumers. And all futuristic products need to address that thing. So that if somebody actually go on a lifestyle actually of adopting, let's say, [indiscernible], then the food that should complement that particular lifestyle. So obviously, these tools need to be, the sugar sodium, all this particular stuff, which is something that has been -- the food industry has been doing over the past. But now it seems to be -- it needs -- it's coming in the mainstream. So we need to adopt it as part of a regular feature within our product mix. So the company is very much aware of it. And in fact, the whole center of excellence has been positioned to use the next 5 years to do research on it and also bring our products and nutrition base in line with that.

Perfect. Third question. And second last question. I attended your AGM that was on Monday, and I wanted to ask this question, but obviously, it was -- I was on Zoom I could not. But international funds that we have parked for liquidity because in the meantime, you're exploring projects for greenfield or brownfield projects. And you have stated the target of 8% dollarized return on the funds that are being parked for the short term 1.5 to 2 years. And Chairman have mentioned that they are fairly liquid. So you can liquidate it in a short-term look. So it's not invested in the illiquid funds. But [Foreign Language] that some of them are exposed to capital losses as well, right? Because listed equities, private placements, certain U.K. gilts, I think 254 bond prices. [Foreign Language] maybe they are liquid -- but in terms of the capital loss and maybe sometimes they can begin permanent loss as well, right? [Foreign Language] , but if the market dynamics change, -- and when you find a greenfield project or use mark-to-market losses. So how is the investment committee looking at this top gap arrangement and the categories that you have invested in. Because I also work for a hedge fund based out of Singapore. So i can relate [Foreign Language] because we do this day in day out to private placements and everything. [Foreign Language]

Thank you very much for this again. [Foreign Language]. First of all, [Foreign Language] do Investment Committee, I mean, it consists of professionals. Number two, the people that we are working with for the placebo funds, I would say industries top professionals. We have been very careful, actually, while the portfolio is extremely diversified. So that's why it is quite, I would say, protected to these kind of shops, where certain categories or products where like the U.K. [indiscernible] and stuff that mentioned, or, let's say, hedge funds and stuff. We made sure that a very small portion of money goes into that particular thing. Apart from the gilts, the Gils is something also that I think the team can actually comment I think very recently, actually, we did a sort of a partial spin-off actually of the actually, which did not, I think, benefited us actually because the opportunity arose. But the essence remains like we said in AGM. None of this thing actually is parked in a way that can actually harm the company. The overall portfolio target, that's why I mentioned specifically, that has been set at 8% to 12% because this is what generally the company's operating return actually is. So if it is going to deliver something less to us, then we are not doing justice obviously, these funds are not going to be kept at permanently, we are very clear on that. These funds are to be utilized actually because we're not in the business of asset management, we are in the business of generating ROI through our -- obviously, in production, consumer growth and all the things. But interestingly enough, actually, because the major -- 1 part of our major strategy actually is competing in the international spec. So it's important to get a strategy right over there as well. And for that particular thing, we are working with consultants because it needs to fit into our strategic directionality of the comp, the company is pretty complex. You're operating in multiple countries, multiple markets, Pakistan itself is a dynamic market. somewhere between the line, you need to have separate strategies for both, but there has to be a common denominator with sort of binds them all together. So that's where actually a lot of qualitative work is being done. And even now, let's say, if anything is identified whether brownfield or greenfield, deploying them and bringing that to life will take at least 1.5 years to 2 years. That is very, very clear. So these parts would need to be managed actually because if we don't manage it properly, obviously, this is an opportunity cost and the shareholders would be losing out. So the performance benchmark given to the fund managers is very, very clear that if you don't deliver that minimum 8%. And the target obviously is anywhere between 8% to 12%. Anything more than that would be highly welcome as well. But the message I'm trying to give you actually is that we're not in this business actually. So obviously, whatever we do is going to be a short term and will be converted to more productive projects and brands for the future.

Perfect. Last comment there, I wanted to raise this in AGM because it's pertinent to the Board. You announced that you're going to retire next year because the company has a policy of 60 year and you have found a very able guy to lead this company in the next, obviously, 10, 20 years for the growth. But I just wanted to quote, I think, globally, [Foreign Language] 40is the new 60, right? So if you look at Warren buffet, he went to 95, 96 as a CEO. And when LVMH CEO, [indiscernible] increased the retirement age from, I think, 70 to 80 in -- so Buffett wrote a letter to LVMH CEO that you have mistakenly put a lower number on the age of the retirement. So the growth that you have put in the company and you're much all healthy, you're very active and you want to contribute on the board as well. So if in terms of the shareholders, if we wish, I think we'd love you to continue and post the growth that there be all stakeholders in the country and the employment and everything can benefit. So if there is any way, I think, just a comment because I think 60 is no age but in terms of the policies in terms of the internal things. And as a shareholder, we'd love you to serve this company and benefit all of us. Just a comment, sir.

First of all, thank you very much, Ahsan for the confidence and for the very kind words actually. I think I'd like to answer this question and address it professionally. Actually, it's not a question of doing well or performing well. I think there is a philosophy which is operating in the company. And when I actually came into the business, my own personal vision obviously, was to create a professional structure, have the best or best professionals working for our company. And the idea actually is that company should never -- if I was to give you a qualitative answer, good companies should not be built around personalities actually. It's great to have Warren buffet and all this particular stuff. But if we have a long-term vision, actually, at least my personal vision was to at least leave this company behind as an institution that should be able to run independently with good covenants actually with through and sound professionals. I am extremely happy. It's also a part of evolution. It's also part of succession. It just clearly shows that governance structure within the company is running extremely well. The Board is doing its job very well. I'm not going anywhere. I think I'm just sort of stepping down and retiring, this policy of retirement, I'm the only 1 who set this policy in any case. So will continue to be on the board till the board thinks that are useful, actually, and obviously, I have to be as well. But we behave actually with the mindset of professionals. I think this is a great achievement for a domestic company which has grown. We are definitely a unicorn. For the first time, actually, in National Foods Foods history, we are moving away from an owner-operated model to a professionally updated and managed model. So the idea that why I'm saying all these things is for the shareholders, there should be immense confidence actually that it's evolved in the right direction with the right professionalism. Hassan, who's just sitting behind me, you just saw actually respond to 1 of the questions as well. A very capable and able gentleman has worked with me directly in the #2 slot for the last 8 years. So he's pretty much grounded. He understands the company extremely well. Next, when I step down, he is going to hit the ground running. He already is running actually. He's a great support for me. He has led many transformations probably within the company. So I don't think we could have had a better choice. So rest assured, I'm there on the Board, and thank you once again for the very kind words.

So moving on to the second participant, can you please and gentlemen from Al-Habib Asset Management Limited company.

This is Mehdi from Al-Habib Asset Management. In your annual report, you stated that the Faisalabad plant has seen significant improvement in terms of efficiency and our productivity. So I have a few questions regarding it. So you have stated that the variable cost 21% saving in it. So could you please tell me that is it like the cheaper ingredients or lower conversion cost what exactly is? Secondly, in terms of internal division based and overall estate, what you have stated like there has been 85% and [indiscernible] significant reduction. So what exactly are these 2 like? And what drove the significant reduction -- and how do you basically measure the electricity and gas efficiency productivity? Is it like output per unit or what metric do you use?

Sure. -- the efficiency in the festival, it's primarily when we talk about the variable costs, we are talking about the conversion costs and variable costs primarily include the labor, utilities as the major component out there. And the efficiencies that we see coming across how we measure it is the tonnage per consumption unit of each particular variant. So in terms of labor, what is the tonnage output per rate per hour of the head count in terms of electricity and gas tonnage per kilowatt hour consumption on the MMBTU consumption per the tonnage that is being produced out of it. And that essentially helps us identify if our consumption is optimizing versus our production, and hence, we see a result in per cost decline and an efficiency coming through. So that's how we measure and that's what's driving. So what is driving those efficiencies are a lot of kaison measures and close working as a team at these plants in terms of identifying different measures of bringing in optimization. So optimizing processes on the line, optimizing the use of electricity in various parts of the plant, bringing in better technology to improve our efficiency of the consumption. So there are multiple measures that are going through it that results in this overall efficiency that comes through. In terms of your question around the wastage improvement, so that wastage is primarily the waste around the raw material and the material consumption. So you would be knowing that any finished product, there is a standard bill of material or a standard consumption of the materials that go through in the production of that -- anything above that is something that we capture and measure as a waste percentage that it has gone above. And there can be multiple measures being the moisture or the normal production wastage that can come through, right? So over the years, this percentage has been brought down in the last 3 years by about 50%. In the last 3 years, it has gone down by about 50%. And despite the fact that, say, for example, in the last 5 years, if you look at our COGS, the cost of sales, that has gone up by about 60% cumulatively, but our wage numbers are still stagnant, showing the improvement that we have brought about in measures of how we can curtail those waste at the plant. So I hope that answers the question that this is what is being captured and that's the measures that we take at our plants.

Okay. Secondly, you have stated. That the proceeds from have been parked into some investment vehicles. Could you enlighten about the investment vehicles like equity or money et cetera, exactly what return do you expect from it? And lastly, in the current environment, what do you -- do we have the power to pass on the price increases to the customer? If yes, so how -- like is it immediate or does it take time? And how does this time duration will affect your gross margins?

Liquidity investment perspective, I think in terms of where we have invested the financial statement disclosed those various avenues and the funds that have been invested in. And as we just mentioned that in terms of our targeted returns, just to that question and we expect in terms of that return as well. From the pricing perspective, obviously, it's a category phenomena looking at the market situation as well. Yes, we have categories that are higher price elasticity there are categories which are less price elasticity and there is competing power that is happening on the ground. The economic situation is the same for all competition and we go forward accordingly. Generally, because of our way of selling where we keep our inventory lean on the trade to pass on the pricing is very efficient. And that is being seen and how taking the pricing in Q1, we have immediately seen impact on our gross margins as well because we've been operating on a lean inventory. So category by category, it's a different phenomenon, and we do look at the competitive landscape and the cost pressures and then we take those necessary decisions.

One thing if you could repeat, I might have missed in terms of the 21% reduction in the variable cost per kg, did you mention that it includes ingredients as well or just the labor and...

No, that variable cost is purely conversion cost.

[Foreign Language]

[Foreign Language] Actually did very well in identifying when you do a price increase, there is usually a dip in the market about 2 months for the pricing to be actually absorbed. Now FMCG industry, the things that we have learned actually is whenever you want to take a planned price increase, you need to ensure should be at the minimum level you. [Foreign Language] If you are carrying a lot of stocks in the market, especially on the shelf, especially at the distributors, Unfortunately, what happens is a situation of arbitrage? And this is when the wholesale market actually gets into a position when they can actually force you to give them extra incentives to actually sustain, let's say, the order position. So we've learned these things in the last so many years, the company has on a very high experience curve. We know how to manage these things. So these dips that you are seeing actually against the budget, we are still way ahead actually. So we know the budget figures are something that, obviously, the shareholders don't see. I can assure you. We are very much in line. We have also done the simulation for the balance 9 months. We are going to actually exceed the performance of the budget when the year ends. We are very much on track. All the strategies the price increases that we do -- we did, they were all preponed, well ahead in time. The market has already absorbed them. That's why you saw the 1 percentage improvement in thing coming in. What is actually problematic for us is the political, unfortunately, the instability -- at global. Unfortunately, the oil prices is something that we are watching very, very carefully because for food industry or an FMCG industry, which is based on packaging, a lot of our materials are petro-driven actually. So obviously, plastics other packaging materials like plastic containers and stuff, they get directly affected. So if this inflation remains on a global level unabated, [Foreign Language] that becomes a problem for the industry. So while 1 or 2 planned price increases can be handled very well. But during the period of uncertainty, what we do actually is we ensure [Foreign Language] We had the opportunity, but we didn't do it because we clearly saw that this thing was emerging -- and if we had actually -- it was very easy for us to push and get a primary sale, we could have done that, but then the stock would have been stuck. So the company has played its cards very intelligently. The market is clean. And we are able to actually generate this recovery. So it was a strategic, very deliberate tactical move that the company did. I assure you the company is nowhere in trouble. It is absolutely in a stable condition, and you will see that we will recover all of this.