Najam Sethi has resigned as chairman of Mitchell’s. What next?

By Muhamad Raafay Khan

Barely two years after taking the helm as Chairman of Mitchell’s Fruit Farms, Najam Sethi has stepped down from the position in favour of Shahzad Ghaffar. Sethi, who is the husband of MPA Jugan Mohsin whose father was the owner of Mitchell’s, will now serve as interim CEO of the publicly listed company until a permanent chief executive is appointed. Shahzad Ghaffar is the husband of Moni Mohsin, the other daughter of the company’s founder S M Mohsin. He is the second successive son-in-law to become the chairman of Mitchell’s.

Sethi was elected chairman of the board back in 2020 to try and turn the company around. His chairmanship had been considered a last-ditch effort by the family to fix Mitchell’s problems after an attempt to sell the company fell through. In the two years in between, Sethi did manage to make a promising start after the company narrowed its losses and increased its firepower, setting itself up for a financial recovery at the one-year mark of taking over. However, in 2022, Mitchell’s faced an annual loss of Rs 621 million — the biggest in its history.

The latest development comes only a few months after the passing of the family’s patriarch, Syed Muhammad Mohsin. Mohsin died in July this year after bequeathing some of his shares to his son Mehdi Mohsin. Since then, his three children have also been on a buying spree. Collectively they have bought 471,600 shares at an average price of 75 per share, indicating they may be consolidating before selling the company.

The Mitchell’s story

Mitchell’s has been in a quandary for some years. A giant in their field, the company belongs to one of the oldest business families of Pakistan. Mitchell’s was initially a fruit orchard founded by Frances Mitchell. It was

bought from him by legendary businessman Syed Maratib Ali, who was the father of Syed Babar Ali. Maratib Ali bought the fruit farms for his son-in-law Syed Muhammad Mohsin, who ran it successfully for decades.

The company enjoyed growth during this period but hit a roadblock around 2016, when it started making consecutive losses after the entrance of a number of competitors that gave it a tough time. Mitchell’s was stuck with legacy costs while the new entrants were able to use new machinery and aggressive marketing campaigns to steal away a big chunk of the market share Mitchell’s had.

In 2019, an attempt was made by the Mohsin family to sell the family business off. Up until this point, S M Mohsin’s son Mehdi Mohsin was running the show at Mitchell’s. Two bidders, Bioexyte Foods Pvt Ltd and Waves Singer Pakistan Ltd, expressed interest in the company out of which Mitchell’s selected the former as its preference. In early 2020, negotiations with Bioexyte entered their final stages.

READ MORE: Mitchell’s: Can a new management save an old company?

That is when the coronavirus pandemic hit, and Bioexyte made a 40% reduction in the initial price they were willing to pay on account of the impending economic slump. This was unacceptable to Mitchell’s, and the deal fell through. After this, Najam Sethi took over control of the board as chairman and brought in Naila Bhatti as CEO. Bhatti had been Sethi’s trusted right hand during his time heading the Pakistan Cricket Board.

Recent events

To many, Sethi’s takeover of the company was a last ditch effort after the sale fell through. In the two years he was in charge, Sethi did manage to begin the execution of a turnaround. In 2021, Mitchell’s made a profit for the first time in six years and it was expected that Sethi’s leadership was finally going to reverse the company’s fortunes. Come 2022, however, the field began to change dramatically. The sponsors of the company started a peculiar buying spree in the middle of the year. From May 20 to June 17, 2022, the three children of the late S M Mohsin, Jugnu, Moni, and Mehdi Mohsin have collectively bought 471,600 shares worth a net of Rs 35,180,378 at an average price of 74-75 per share, its lowest in five years. It raises the question whether they have finally given up trying to save their late father’s company and are planning to sell the company once more? It could also mean that the sponsors are trying to signal the market to buy its shares in order to drive the share price up, and maybe then sell the company at a higher price.

According to a source in the senior management of Mitchell’s, the sponsors’ buyback is not a sign of the company’s sale in the future but a show of faith in the company’s strength and the bright outlook they expect after the change in top management. The sponsors decided to buy the shares directly from the market because the shares were trading at their lowest price in many years. The choice to buy back the shares directly makes sense considering a rights issue of Rs 750 million was already made in 2020 and a sponsor loan of Rs 200 mn in the last few months.

Given the sponsors’ attempt to sell off the company just two years back, it is natural to be wary of another potential sale. However, the senior source in the company says that while a few potential suitors have recently approached the management with their offers, a sale is not on the horizon any time in the near future.

In the midst of all of this, it became apparent that the initial improvement in financials was not to continue. The company posted an annual loss of Rs 621 million, the biggest loss in the history of Mitchell’s. Part of this was due to the slump in the economy and partly a result of poor business decisions by the management, which didn’t raise its prices as high inflation and currency depreciation severely raised the company’s costs. This naturally led to the resignation of Ms. Naila Bhatti as the CEO on Oct 30 last month.

It seems the company has learned from its recent hiring experience and will now be looking to finalise a new permanent CEO soon this month. According to our source, the new chief will be an experienced FMCG executive of a high stature in the industry and will be well-versed to lead the operations of the business.

The change in top management and huge losses raise questions about the future plans of the business. The company has delayed its AGM for FY22 by 30 days later this month and has also requested a month-long extension to make its results for the first quarter of FY23 public. However, our source in the senior management of the company comments that the first quarter results will report a slight loss, which will be followed by a profitable second quarter that will wipe out the first quarter’s loss, and highly profitable remaining quarters to make up partly for the losses of FY22.

At the time of the takeover deal on January 27, 2020, the share price was RS 344.99, a remarkable 77% jump in the stock price in over three months since the transaction was announced. Given the company’s losses over the previous few years and the peculiar buying spree of the sponsors, one can only wonder, where Mitchell’s is going. n

All numbers in thousands (000s) 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013

Sales 2,489,291 2,210,620 2,112,493 1,987,552 1,628,008 1,894,406 1,679,462 1,696,332 1,945,126 2,084,261 Gross Profit 193,820 489,340 442,423 434,413 252,889 459,533 393,082 403,704 521,349 537,465 Profit from Operations -549,197 67,426 47,016 26,777 -268,174 31,076 45,014 74,340 158,067 204,494 Profit After Tax -621,977 10,466 -55,445 -80,006 -292,619 -30,884 -12,108 27,069 107,464 132,404 EPS -27.19 0.49 -3.05 -10.16 -37.16 -3.92 -1.54 3.44 13.65 16.81

Mitchell’s Fruit Farms Ltd Financials from 2013-2022

Financial Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Profit After Tax (000s) 132,404 107,464 27,069 -12,108 -30,884 -292,619 -80,006 -55,445 10,466 -621,977