The Olpers maker lifts nine-month revenue to Rs88.4 billion and operating profit by 53%, but quarterly sales growth has roughly halved as freight costs, an 18% tax on packaged milk and squeezed household budgets bite.
KARACHI/LAHORE: FrieslandCampina Engro Pakistan Ltd (FCEPL), the maker of Olpers milk, said its revenue rose 10.1% in the first nine months of 2026 to Rs88.4 billion, from Rs80.2 billion a year earlier, as cost savings widened margins and lifted operating profit by more than half.
Behind the headline, however, growth slowed noticeably in the third quarter. Sales between July and September were about Rs29.5 billion, according to calculations based on the company’s half-year accounts, up roughly 6.6% from about Rs27.7 billion a year earlier. That compares with 12.1% growth in the first half.
The company blamed a tougher environment: higher freight and energy costs from regional conflicts, inflation and interest rates eroding household purchasing power, and an 18% sales tax on packaged milk that it says gives untaxed loose milk an unfair price advantage.
Margins carry the year
FCEPL said its gross margin expanded by 400 basis points, or four percentage points, over the nine months, and operating profit grew 53.3%. It credited a “favourable portfolio mix, emphasis on in-market execution, selective brand investment and route-to-market fundamentals”, along with efficiency gains in sourcing and manufacturing.
The improvement has been building all year. In the first quarter, profit after tax rose about 71% to Rs1.85 billion. For the first half, the company reported net profit of Rs4.40 billion, more than three times the Rs1.32 billion a year earlier, with earnings per share of Rs5.74, helped by lower finance costs as interest rates came down from their 2023 peaks. Operating profit in the first half rose 53.9%, close to the nine-month figure, suggesting margins held up in the third quarter even as sales growth slowed.
The nine-month statement did not give net profit or earnings per share; investors will look for those in the company’s filing with the Pakistan Stock Exchange.
The 18% question
The company returned to its long-running complaint about tax. Since July 2024, packaged UHT milk has carried an 18% sales tax, while loose milk sold by gawalas and local shops remains outside the tax net. The result, FCEPL said, is an “uneven playing field” in which the widening price gap suppresses demand for packaged milk and hurts the documented dairy economy and the farmers who supply it.
Industry figures show the scale of the problem. The Pakistan Dairy Association has linked the tax to a 27% decline in the formal dairy sector, in a market that is about 98% informal. With the extra 4% charged on sales to unregistered buyers and withholding taxes, processors say the effective burden is close to 25%, and they asked in the budget season for the rate to be cut to 10%. The government, bound by its IMF programme not to reduce taxes without replacing the revenue, left the rate unchanged.
FCEPL said it continued to engage government stakeholders “to advocate for equitable taxation aligned with global benchmarks”, arguing that the current regime hurts farmer livelihoods.
Milk in a squeezed household
The tax matters most at the shop counter. In Lahore, packaged milk costs considerably more per litre than loose milk, which is supposed to sell at an official price of Rs230 a litre, a rate many sellers ignore. With consumer inflation running at about 10% and food and fuel prices still climbing, many families have switched to cheaper loose milk, whose quality is often unverified, despite repeated food authority crackdowns on adulteration.
Health experts warn the trade-off is costly. About 40% of Pakistani children are stunted, and the country has one of the highest infant mortality rates in the region. Nutrition advocates have urged the government to treat milk as a basic food rather than a revenue source, a call that has grown louder as food insecurity spreads.
Costs and rates
The operating environment is unlikely to ease soon. FCEPL said higher freight and energy prices “weighed on the value chain” in the third quarter, a reflection of the Middle East conflict that has pushed up oil prices and weighed on Gulf economies. On Monday, the State Bank of Pakistan raised its policy rate by 50 basis points to 12%, citing oil price risks to inflation, a move that may lift the company’s borrowing costs again and further squeeze consumer spending.
The World Bank, in its latest outlook, said real wages have fallen 3.4% since 2018 and poverty has risen to nearly 48%, conditions that make premium packaged foods a harder sell.
FCEPL is majority owned by Dutch dairy cooperative Royal FrieslandCampina, which bought control of the former Engro Foods in 2016, with the Engro group retaining a minority stake. Its best-known brands include Olper’s and Tarang. The company says it draws on FrieslandCampina’s 150 years of heritage to maintain “the highest standards of hygiene, food safety and sustainability”.
For Punjab, home to much of Pakistan’s dairy herd and to many of the farmers who sell to FCEPL’s collection network, the company’s fortunes are tied to the wider debate over formalising the milk trade, an area where the provincial government has looked to China’s dairy model for ideas.
The company’s near-term growth will depend on whether inflation eases, whether the government revisits the milk tax in next year’s budget, and how long freight and energy costs stay high. For now, cost discipline is keeping profits growing faster than sales. Whether that can continue if volumes stay under pressure is the question investors will be asking.
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