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FFC remains pioneer in Pakistan’s fertilizer business; investments stand at Rs 29.66bn last year

Fauji Fertilizer Company (FFC) which started its 38 years long journey from one fertilizer plant has three plants now and is presently the largest producer of urea with an aggregate urea production capacity of well over 2 million tonnes per annum.

 

PROFITABILITY RATIOS (%)
Details
2016
2015
2014
Gross profit ratio
24.77
34.05
38.29
Gross profit ratio (Including Subsidy)
31.34
35.18
38.29
Net profit to sales
16.17
19.76
22.37
Net profit to sales (Including Subsidy)
14.75
19.42
22.37

 

FFC has attained long term credit rating of double A (AA) and short term rating of A1+ denoting high credit worthiness and very low expectation of credit risk strengthening the confidence of FFC’s stakeholders.

The company has been recognized for professional achievements domestically and globally and became the first company ever to attain six consecutive first positions on PSX’s Pakistan Stock Exchange) top 25 company placements.

SHAREHOLDERS’ EQUITY

Issuance of 25 percent and 50 percent bonus shares during 2011 and 2012 resulted in a share capital of Rs 12.72 billion, explaining a rise of Rs 4.24 billion since 2011. Reserves increased at a yearly average rate of around 2 percent since 2011 mainly on account of profit retentions by the company net of bonus shares issuances in 2011 and 2012. Resultantly, shareholders’ equity comprising of share capital and reserves increased to Rs 28.21 billion at the close of the year, almost 24 percent higher than Rs 22.68 billion registered during 2011.

NON-CURRENT & CURRENT LIABILITIES

Deferred liabilities, comprising of deferred taxation and compensated leave absences at Rs 4.81 billion is in line with the historical trend of previous 6 years, mainly because of accumulation of leave absences balance. Long term borrowings stayed comparatively consistent till 2014, however, during 2015, payment of formerly retained GIDC to the government and working capital requirements financing by long term borrowings, aggregated to Rs 15.89 billion at the close of 2015. During 2016, a rise of Rs 760 million, net of repayments, was registered to fund Capex and equity investment in subsidiary. Current liabilities rose from Rs 26.52 billion during 2011 to Rs 53.82 billion in 2014 on account of GIDC retention under the Court rulings, which was subsequently settled in 2015. Trade and other payables rose to Rs 10.85 billion at the end of 2016 mainly on account of GIDC retention under the Court rulings, which is however, lower than net average growth rate of previous 5 years.

In addition, short term financing counting present portion of long term borrowings rose by Rs 6 billion chiefly to finance working capital requirements of the company arising because of depressed market conditions during the year. Other components of current liabilities including accrued mark-up and taxation liability were in line with the past trends.

NON-CURRENT & CURRENT ASSETS

Non-current assets chiefly include property, plant & equipment and long term investments of FFC. Net rise in property, plant & equipment by Rs 4.18 billion since 2011 is because of capitalization of new building, procurement of natural gas compressors and other routine Capex requirements.

In order to grow and spread the business risk, FFC has diversified considerably since 2011 by incorporating FFCEL, acquisition of 43.1 percent stake in AKBL and expansion of FFF at an aggregate cost of Rs 15.54 billion.

Consequently, the company’s long term investments stand at Rs 29.66 billion at the close of 2016, with a rise of over 3 times since 2011. While, the current assets chiefly constitute of stores and spares, stock in trade, trade debts, other receivables, short term investments and cash & bank balances. Variation in current assets’ balances during the 5 years since 2011 was mostly due to fluctuations in short term investments.

In comparison with 2015, other receivables rose to Rs 7.69 billion as against to Rs 2.81 billion because of accumulation of subsidy and sales tax receivable from the government. To generate lucrative returns, surplus funds were deposited in short term investments resulting in a rise of 37 percent in short term investments on yearly basis.

SALES

Although the company created new revenue benchmarks each year since 2011, government price pressures in 2016 resulted in an aggregate revenue counting subsidy, of Rs 79.86 billion, 7 percent lower than 2015. Cost of sales registered as against yearly growth rate of 21 percent since 2011, on account of higher gas rates, levy of GIDC and rise in other manufacturing expenses caused by inflationary factors.

Furthermore, gross profit recorded at Rs 25.03 billion, gross profit counting subsidy declined by 18 percent as against to 2015 mainly because of increased cost absorption.

Finance managers of the company also mentioned that the distribution cost as a percentage of sales was slightly higher than previous 6 years’ average of 8 percent, chiefly on account of rose handling cost because of over saturation of the market that persisted for most part of the year. Operating profit counting subsidy has declined from Rs 29.98 billion in 2011 to Rs 17.88 billion during last year.

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