Olympic Industries Ltd, a leading manufacturer of biscuits and confectionery items, witnessed an increase in the cost of goods sold (COGS) to Tk 1,968 crore or 76 per cent of total sales in FY23, which is a rise from 3-year average of 72 per cent.
Cost of goods sold (COGS) refers to the direct costs of producing the goods sold by a company. Olympic’s increase in COGS was exacerbated by the rapid devaluation of the taka, and higher commodity prices recorded in the last FY.
Furthermore, the publicly traded company is facing additional challenges in recovering margin due to the increase in energy prices, including a 51.6 per cent hike in octane, a 42.5 per cent jump in diesel, and a 22.78 per cent increase in natural gas, EBL Securities, the leading stock broker, said in an equity report on the company.
Despite YoY improvements in profitability margins in FY23, the company has not yet reached its optimal performance level, which typically exhibits gross profit margins of 30 per cent, operating profit margins of 16 per cent, and net profit margins of 12 per cent.
The average purchase prices of key raw materials in FY23, namely wheat flour, sugar, and palm oil, were higher by 33 per cent, 18 per cent, and 58 per cent, respectively, while compared to the prices of FY21, therefore impacting profit margins.
However, the falling commodity prices late in 2023 should ease cost pressures in upcoming fiscals, according to the RBL Securities note.
In FY23, the company demonstrated YoY growth of 20 per cent in revenue and 29 per cent in net profit. This growth was driven by the company’s ability to increase prices per stock-keeping unit in order to pass higher input costs onto consumers.
As a result, the company observed a rise in its profitability margins, with gross profit margin, operating profit margin, and net profit margin increasing to 23.8 per cent, 8.55 per cent, and 6.04 per cent, respectively, compared to 23 per cent, 7.2 per cent, and 5.6 per cent a year ago.
The expansion of the product portfolio beyond just biscuits has allowed the company to improve profitability, EBL Securities said.
Over the past three years, the company has made significant investments in various areas with a view to entering major segments of snacks such as instant noodles, dry cake, soft cake, chocolate-enrobed wafers, filled candies, toffees, toast, rusk, and savory snacks, in addition to its established presence in the biscuit industry.
Olympic has cumulatively invested Tk 63 crore, Tk 34 crore, Tk 14 crore, and Tk 45 crore in storage extension works, import of machines to facilitate product diversification, import of packaging machines, and land purchase and registration, respectively, in the last 3 years.
These investments are a clear indication of the company's expansion strategy, as per the report.
In 2023, the company began commercial production at its new cupcake facility, which was installed in 2022 at a cost of Tk 6.49 crore. The facility has an annual production capacity of 79 million cupcakes and the potential to generate Tk7.60 crore in revenue.
Besides, on October 22, the company announced that it would import the 2nd High-Speed Instant Noodles Line from Japan at a cost of Tk 24.7 crore, to increase its production capacity from 8,316 to 19,008 tonnes per year.
The company, which went into operation in 1979, is the maker of popular biscuit brands such as Energy Plus, Tip, and Nutty.
The company is also a pioneer in exporting biscuits, exporting branded biscuits to at least 30 countries, including the USA, the UK, Greece, France, Cyprus, Portugal, Ghana, and Somalia.
Olympic got listed on the Dhaka Stock Exchange in 1984 and Chittagong Stock Exchange in 1996.
The company's dividend payout ratio has risen to 77.09 per cent in FY23, up from a 3-year average of 59 per cent. This year, the company declared a 60 per cent cash dividend, marking the highest dividend yield in 15 years.
Olympic Industries shares closed at Tk 141.40 on the Dhaka bourse trading floor on Sunday.
