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Fauji Fertilizer Bin Qasim

Fauji Fertilizer Bin Qasim

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Analysis of Financial Statements Final Report
Sectorial Analysis of Fauji Fertilizer Bin Qasim

Table of Contents
Table of Contents.............................................................................................2 Acknowledgement............................................................................................4 Company Profile...............................................................................................5 Vision............................................................................................................ 6 Mission.......................................................................................................... 6 Company Performance .................................................................................6 Sponsors/group PROFILE...............................................................................6 ACHIEVEMENTS OF FFBL:..............................................................................8 FERTILIZER SECTOR ......................................................................................................................... 9 SECTORAL OUTLOOK.....................................................................................9 AGRICULTURE SECTOR...............................................................................9 TYPES OF FERTILIZER...............................................................................10 GLOBAL SCENARIO...................................................................................10 PRICING....................................................................................................12 DEMAND & SUPPLY......................................................................................14 TAXES...................................................................................................... 15 Company Financials.......................................................................................16 Balance Sheet.............................................................................................16 Income Statement.......................................................................................19 Vertical & Horizontal Analysis........................................................................19 Vertical Analysis..........................................................................................20 Vertical Analysis of Balance Sheet...........................................................20 Vertical Analysis of Income Statement.....................................................23 Horizontal Analysis......................................................................................24 Horizontal Analysis of Balance Sheet (Base Year 2005)...........................24 Horizontal Analysis of Income Statement (Base Year 2003)....................27 Internal Ratio Analysis....................................................................................29 External Ratio Analysis...................................................................................33 DuPont Return on Equity................................................................................37

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Insight for Investors & Creditors.....................................................................40 Future Projections..........................................................................................41 Recommendation...........................................................................................42 References.....................................................................................................43 Appendix........................................................................................................ 44 Balance Sheet.............................................................................................44 Income Statement.......................................................................................47

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Acknowledgement
The compilation of this report could not have been realized without the blessings of Almighty Allah. I am highly indebted to quite a few people who have been there from the beginning till the completion of my research. Their undue support has been the source of inspiration for us to complete it efficiently within time. I would deeply like to thank our teacher for his guidance during the project. His excessive support has been the source of motivation to perform our best, regarding the report.

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Company Profile
Fauji Fertilizer Bin Qasim Limited Plant site is a modern Granular Urea and DiAmmonium Phosphate (DAP) fertilizers manufacturing complex, built at a cost of US$ 468 Million and located in Eastern Zone of Bin Qasim, Karachi, with Head Office at Harley Street, Rawalpindi. Initially named as FFC-Jordan Fertilizer Company (FJFC), wef 17th Nov 1993, with FFC (30%), FF (10%) and JPMC (10%) as main sponsors. The company was formally listed with stock exchanges in May 1996 and commercial production commenced wef Jan 2000. However, it continued to run in crises due to technical, financial and managerial reasons till 2001. DAP Plant brought to suspension in 2001 due to accumulated loss of Rs. 6.5 Billion. It resumed production in Sep 2003, after a lapse of 2 years. Renamed as Fauji Fertilizer Bin Qasim Ltd. (FFBL) in 2003, as such Jordan Phosphate Mines Co. (JPMC) had sold its entire equity in the company. Accordingly Phosphoric acid supply agreement with Jordan was terminated. The company turned out to be profitable after 3 years i.e, by 2004 and declared 'maiden dividend' in 2004. Profitability has constantly been on the rise since then and 2007 has been the most profitable year of the company. One of the milestones in the success of FFBL is its accreditation of ISO certification, which was achieved in Mar 2006 for both the Head Office and Plant site.

FFBL fertilizer complex is state of the art manufacturing facility with advanced Distributed Control System for safe and efficient operation. The phosphoric acid being raw material for DAP plant is imported from Morocco and initially stored in tanks at Port Qasim. Design capacity viz-a-viz actual production of Plants is as under:

Manufacturing Plants

Production (Metric Ton / Day) Original Actual (Approx) 1920

Urea Granular

1670

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DAP Ammonia

1350 1270

2230 (After Revamp) 1570 (After Revamp)

Vision
• • • • • •

Be a leading fertilizer company with a diverse product base Continue to excel in operations Commitment to business ethics, safety, health, environment and involvement in the community Remain a good corporate citizen Be one of the best corporate employers Keep exploring other project investment opportunities to remain progressive, flexible and viable

Mission
Pursue as a team, the progressive strategy based on the principle of maintaining the spirit of excellence to remain among the best companies for delivering competitively priced quality products, achieving sustainable growth rate in all activities and generating optimum profits to the satisfaction of all stakeholders.

Company Performance
The adverse factors facing the Economy also affected Company’s performance for the year 2008, despite the fact that Company achieved the best results in its history under an extremely tough financial and sales environment during the year. After completion of Ammonia Plant BMR in year 2007 and witnessing successful completion of DAP plant revamp project during first quarter of the current year, the Company had the potential to produce even better results than achieved. However, the DAP sales target was not achieved due to significant up-surge in phosphoric acid prices, substantial devaluation of Pak Rupee against other currencies, delay in receipt of DAP subsidy claim from GOP, and very high interest rates over much needed short term borrowings. Notwithstanding these factors, arrangement of funds from financial institutions was itself a good job done by the management of the Company.

Sponsors/group PROFILE
Fauji Foundation (FF) Group was founded in 1954 as a charitable trust for the uplift of ex-servicemen of the armed forces and their families. Today, the foundation is a multi-disciplinary welfare-cum-industrial entity, having operations across the country. The trust has interest in a number of

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wholly and partially owned units, income from which is used to fund welfare operations. No aid or funding is accepted from the federal and provincial governments. Earnings of the trust are derived either directly from operations of the wholly owned units or indirectly from shareholding projects. FF’s shareholding projects are diverse and amongst others include cement manufacture, power, oil terminal & distribution, fertilizer manufacture & distribution and IT projects. With its well-managed and profitable business concerns, FF is an entirely self-supported entity operating in a private sector.

The major companies under management of Fauji Foundation apart from FFBL are: 1. Fauji Fertilizer Company Limited (Parent Company of FFBL holding of 51%) 2. 3. 4. 5. Fauji Cement Company Limited Mari Gas Company Limited Fauji Oil Terminal Company Limited Fauji Kabirwala Power Company Limited

Manifolds of funded & non-funded facilities for group concerns of FFBL i.e. Fauji Fertilizer Co. Ltd., Fauji Kabirwala Power Company Ltd. and Fauji Cement Co. Ltd. have already been offered. The details of current exposure offered to group concerns of FFBL are as under:
Funded Exposure 1,140.00 * 1,140.00 1,140.00 NonFunded Exposure 1,500.00 150.00 300.00 1,020.00 510.00** Funded Outstandi ng 500.00 500.00 500.00 NonFunded Outstandin g 70.00 70.0 70.0

Associated Concerns

Fauji Ltd.

Fertilizer

Company

Fauji Cement Company Ltd. Fauji Kabirwala Company Ltd. Power

Total Group Exposure Net Group Exposure

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Max. Exposure Client-Group

on

the

2,091.24 951.24

2,987.49 1,967.49

Cushion Available for FFBL

* Total exposure of FFCL is to be capped at Rs. 1,710.00 M as per PR-1 of corporate banking. ** As per PRs for Corporate, R-1(e), in arriving at total exposure, 50% Weightage is given to non-fund based financing facilities.

Note: Fauji Cement Company Ltd. & Fauji Kabirwala Power Company Ltd. has been principally approved and indicative term sheets have been given to them however acceptance have not been received yet.

ACHIEVEMENTS OF FFBL:
FFBL has witnessed one of the most successful turnarounds in Pakistan’s fertilizer industry’s history, after undergoing re-structuring exercise with the Government of Pakistan, sponsors and lenders. As a nascent company in early 2000, FFBL suffered major losses. However, prudent strategies helped the company to emerge out of this deplorable condition, marking the relentless growth of the company from FY02 onwards. Further, the commencement of previously resumed DAP plant in 2003 increased the profit margins of the company by manifold. The year 2008 is quite significant for the company due to completion of GOP compensation and suspension of subsidy on feed gas, the only raw material of ammonia which in turn is raw material for Urea and DAP. There was, therefore, a dire necessity for the company of not only expanding its existing capacities but also to look out and grab other appropriate business opportunities. The company has successfully completed its project of Ammonia Balancing, Modernization, Revamping, Expansion (BMRE - Ammonia) in last year to increase its production from 1270 MTPD to 1570 MTPD. An increase of about 23% over existing capacities with the total project cost of Euro 50 million approx. The company has undergone an extensive up gradation program of its plant to improve efficiency and enhance capacity. They are continuing down their

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path of excellence by completing their project of DAP Plant Balancing, Modernization and Revamping (DAP BMR). This project’s total cost was US$ 26 million, which had been incurred to enhance production, to improve reliability and efficiency.

FERTILIZER SECTOR SECTORAL OUTLOOK
AGRICULTURE SECTOR
The undeniable importance of the agriculture sector to the economy of Pakistan is reflected in its contribution to national output, employment and export earnings. This sector contributes 22% to the country's Gross Domestic Product (GDP) and employs 43% of total labour force. Growth in this area of Economy is vital for poverty alleviation, as about 66 percent of rural population is directly or indirectly dependent on the agriculture sector for sustenance. Pakistan’s major source of foreign exchange earnings is the textile sector which also relies on agricultural performance. The major crops of Pakistan are wheat, cotton, rice and sugarcane, which make up 7% of the country’s GDP.

Fertilizer has a significant contribution in increasing crop yields and productivity. Proper application of nutrients helps in efficient utilization of limited natural resources such as land and water. Fertilizers improve crop yield by removing the deficiency of chemical elements taken from the soil by harvesting, grazing, leaching or erosion. Coupled with improved seeds, better insecticides and more effective fungicides, chemical fertilizers play a vital role in boosting agricultural output. With proper farmer education and increased awareness, the fertilizer off-take can improve substantially.

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Nutrient application in suitable quantities can further improve farm productivity, thereby helping in eradicating poverty.

TYPES OF FERTILIZER
Urea, which represents 65% of total fertilizer consumed and di-ammonium phosphate (DAP), which accounts for 18%, are the main types of fertilizer used in Pakistan, but there is a total of eight different fertilizer products which fall into three categories. Urea, along with calcium ammonium nitrate (CAN) and ammonium sulphate (AS) together make up almost three fourths of total fertilizer consumption and come under the nitrogenous category. Under the phosphatic category which makes up about 27%, is DAP, triple super phosphate (TSP), single super phosphate (SSP) and nitrophosphate (NP). And under the last category, potassic is sulphate of potash which makes up only 1%. Since the soil in Pakistan generally tends to be deficient in nitrogen, urea is the most used fertilizer. DAP is used, as most phosphatic fertilizers are to counter the effect of the acidic urea and maintain levels of fertility in the soil.

GLOBAL SCENARIO
The world grain consumption has outpaced production in six of the last seven years, with 2005 being the only exception, in which production superseded supply due to favorable weather in almost all the major grain producing countries. With the growing demand of food and rapid increase in demand for biofuels, the grain consumption growth has witnessed an increase of 2% in 2007 from the historical average rate of 1.2% p.a. This has led to a widening

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gap between consumption and production resulting in sharp increase in food prices in the global market.

During 2007, total global production of grains was recorded at 2.3bn tons, up 4% YoY. Despite, the increase in production the global commodity prices have climbed significantly during the past twelve months on the back of rising demand from emerging economies. Corn, wheat, and rice account for about 85% of the global grain harvest (in terms of weight), while sorghum, millet, barley, oats, and other less common grains make up the rest. China, India, and the United States alone account for 46% of global grain production; Europe, including the former Soviet states, grow another 21%. In 2007, a 200mn ton jump in the global coarse grain harvest was responsible for nearly all of the increase in the total grain harvest. Production of coarse grains—a group that includes corn, barley, sorghum, and other grains fed mainly to animals—increased 10% from 985mn tons in 2006 to 1,080mn tons in 2007. During 2007, a significant amount of global corn production was used in producing biofuels, the use of which is being promoted in developed countries (mainly EU and USA). Governments in developed countries have been encouraging the use of biofuels primarily due to (1) Increasing price of international crude oil and (2) Bio-fuels are environment friendly. Out of a total of 784mn tons of corn harvested during 2007, about 255mn tons or 32.5% was used in extracting biofuels which has resulted in sharp increase in price of the commodity. Higher corn prices prompted many a farmers in various countries (China, Brazil and the United States) to switch to corn harvesting. Another major consumer of grains is the livestock sector, which accounted for approximately 627mn tons (27%) in the form of feed for the cattle. Demand of grains from this sector has grown rapidly over the past few years on account of higher consumption of dairy products and meat by the developing countries especially China, India and Brazil. The amount of grain stored by governments— a good measure of the global cushion against poor harvests and rising prices—continues to decline. Global cereal stocks were expected to stand at 318mn tons by the close of the 2007 season, equivalent to about 14 percent of annual consumption, lowest since many years. In comparison to the global scenario, Pakistan’s food grain production has witnessed a rising trend over the years registering a 4-year CAGR (FY02-06) of 5.7% on the back of good harvest of major crops (wheat & rice) which account for almost 84% of the total grain production of the country.

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PRICING
Local Arena
Urea prices have shown a positive trend over the last few years on the back of step-wise increase in feedstock gas prices, the primary raw-material for urea manufacturing. Government heavily subsidizes feedstock prices in Pakistan, to keep the urea prices within affordable limits of the farmers. A 50kg bag of urea is sold at PKR 558-565 (prices were revised upwards in Dec’07) versus a price of approximately PKR 1000 per bag in the international market. DAP prices on the other hand have undergone a radical increase during 2007, due to record high phosphoric acid prices in the international market (a major raw material). Local prices of DAP are highly correlated with their global rates since over 70% of the commodity used in the country is imported. As a result, domestic DAP prices have surged during CY07, rising from PKR 800 per bag at the start of the year to touch PKR

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1,680 by Dec’07

Urea Prices
International urea prices have escalated at a healthy 4-year CAGR (FY03-07) of 19.6%, driven by its increased usage globally from 128mntpa in 2005 to 138mntpa in 2007. On the other hand local urea prices have risen at a 4-year CAGR of 6.8% from FY03 to FY07. GoP heavily subsidizes the feedstock gas prices in order to make available the fertilizer to the local farmers at an affordable cost. Urea prices are primarily linked to the increase in feedstock gas prices, which are expected to rise at a next 4-year CAGR of 11% going forward. Consequently we expect local urea prices to increase at a 4-year CAGR of 5.5% for the period FY07-FY11.

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DAP Prices
International DAP prices have risen sharply during 2007 (+143% YoY) on the back of rising demand for the phosphatic fertilizer for harvesting of crops used in production of biofuels. In the local market, price of DAP fertilizer too has followed suit and has gone up from PKR 873 per 50kg bag at the start of 2007 to around PKR 1,680 per bag at present. Despite the PKR 470 per bag subsidy by the GoP, the hefty rise in DAP prices has caused its off-take to drop significantly during the past few months with many farmers reverting to the use of urea. FFBL the only producer of DAP and caters to only 31% of the DAP demand of Pakistan while the rest of the demand is met through imports. Since the local prices are highly correlated to global prices we estimate DAP prices to increase at a 4-year CAGR (CY07-11E) of 6.3%.

DEMAND & SUPPLY
There are nine fertilizer plants in Pakistan with a total installed capacity of 4.35mn tons including urea, Di-ammonium phosphate (DAP), single super phosphate (SSP), calcium ammonium nitrate (CAN), nitro phosphate (NP) and ammonium sulfate (AS). Total demand of these fertilizers is estimated to grow at an average of 4% per annum in the medium term. The shortfall of approximately 1.1mntpa is met through import on which GoP provides

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subsidies. During FY08, the GoP allocated a sum of PKR 13.5bn for import of various fertilizers.

The graph above shows the demand trend of both major fertilizers, urea and DAP, which has increased at a 4-year CAGR (CY02-06) of 4.6% and 7.7% respectively. Given the increase in crop prices, low per acre usage of fertilizers, increasing awareness among the farming community and vast cultivable land, we estimate demand growth of fertilizers to average over 4% per annum over the next 4 years.

TAXES
The government has privatized and deregulated fertilizer imports and prices. In 1986, all subsidies on nitrogenous fertilizers were abolished followed by phosphates in 1993 and potash in 1997. Provincial quotas were abolished, provincial supply organizations in the public sector abandoned and import controls were lifted. All imports are affected by the private sector. In 2001,

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the government imposed a 15 percent general sales tax on all fertilizer products. Farmers have to pay international prices for imported products, apart from urea. The share of the private sector in fertilizer marketing is 89 percent, compared to 11 percent for the public sector. The private sector handles about 90 percent of the urea and 100 percent of the DAP, the two major fertilizer products consumed in the country. A dealer network of about 8 000 retailers exists in the country. Fertilizer companies select and train the dealers. There is no government intervention. However, under ‘Fertilizer Acts’ promulgated by provinces, fertilizer quality is monitored by the provincial governments.

Company Financials
Balance Sheet
2001
SHARE CAPITAL AND RESERVES Share capital Capital reserve Translation reserve Accumulated loss TOTAL SHARE HOLDER EQUITY

2002

2003

2004

2005

2006

2007

2008

3,341,10 0 228,350 6654018 3,084,56 8

8,099,01 4 228,350 4523151 3,804,21 3

9,099,01 4 228,350 3319790 6,007,57 4

9,341,10 0 228,350 2,422,80 8 7,146,64 2

9,341,10 0 228,350 1,841,91 9 7,727,53 1

9,341,10 0 228,350 1,031,75 4 8,537,69 6

9,341,10 0 228,350 1,060,52 3 8,508,92 7

9,341,10 0 228,350 572,399 344,522 10,486,3 71

NON-CURRENT

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LIABILITIES Long term financing Liabilities against assets subject to finance lease Long term murabaha Deferred tax liability Long term loan Redeemable Capital TOTAL NONCURRENT LIABILITIES CURRENT LIABILITIES Trade and other payables Mark - up accrued Short term borrowings Current portion of: - Long term financing - Liabilities against assets subject to finance lease - Long term murabaha - Long term loan Sales tax payable TOTAL CURRENT LIABILITIES TOTAL LIABILITIES CONTINGENCIES AND COMMITMENTS

2,710,13 8 19,875

2,293,19 2 11,290

1,876,24 8 6,294

1,459,30 4 3,310

1,042,36 0

625,416

251,408 19,000 5,366,31 4 2,073,50 6 7,439,82 0 9,135,92 7 3,621,32 9 12,776,2 56 8,426,61 0

212,730

174,051 1,322,28 3 7,130,20 8

135,373 2,634,33 9 6,482,00 7

96,694 4,080,52 9 5,833,80 6

58,017 4,196,79 3 5,185,60 5

7,778,40 9

11,408,0 31

10,295,6 21

10,509,0 84

10,714,3 33

11,053,3 89

10,065,8 31

929,295 2,494 137,133

2,163,36 6 27,536 1,176,62 5 416,944 6,467

2,905,99 5 94,348 2,236,64 9 416,944 4,015

2,674,90 3 104,952 4,531,83 6 416,944 2,586

2,377,95 2 123,887 5,875,34 1 416,944 2,651

6,264,66 9 593,586 18,257,0 82 416,944

208,472 7,506

19,340 648,201 14,506,1 25 21,945,9 45 2,192,86 9 14,969,1 25 1,952,44 1 13,360,4 72

38,679 648,201 46,880 4,524,69 8 14,820,3 19

38,679 648,201 6,344,83 1 16,853,9 15

38,679 648,201 11,226 8,429,32 7 19,143,6 60

38,679 648,201 9,483,65 5 20,537,0 44

38,679 648,201 308 26,219,4 69 36,285,3 00

18,861,3 77
FIXED ASSETS

18,773,3 38

19,368,0 46

21,966,9 61

24,581,4 46

27,681,3 56

29,045,9 71

46,771,6 71

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Property, plant and equipment Intangible asset Capital work in progress LONG TERM INVESTMENTS LONG TERM DEPOSITS AND DEFERRED COSTS DEFERRED TAX

16,701,9 86

15,801,5 81 47,370 52,228

15,178,8 56 23,686

14,539,3 49

14,563,1 03

14,930,3 39

16,458,2 65

15,847,1 04

358,600 34,496 26,936 25,210 18,518

734,275 17,395

1,411,15 0 17,273

1,411,15 0 15,228

2,416,77 0 15,228

999,351

1,160,68 8

143,527

CURRENT ASSETS Stores, spares and loose tools Stock in trade Trade debts Advances Trade deposits and short term prepayments Interest accrued Due from GOP on account of DAP subsidy Other receivables Income and sales tax refundable net Investments at fair value through profit or loss Short term investments Bank balances TOTAL CURRENT ASSETS TOTAL ASSETS

403,797 324,764 558,982 447,177

465,013 130,676 644,967 405,924

455,915 209,511 392,377 11,886 2,590 6,304

520,399 252,252 431,246 207,391 2,340 23,733

577,082 1,022,95 7 115,081 37,816 3,306 85,545

797,314 800,535 231,272 61,160 5,058 91,218

1,266,57 0 587,946 243,751 79,519 8,467 96,526 729,181 454,137

1,422,56 7 5,676,73 9 285,454 64,637 4,876 65,669 12,440,0 60 591,043

241,820 40,471

322,273 68,720

336,266 157,005

1,346,86 7 251,034 502,387

319,121 2,053,84 1 18,861,3 77

199,292 1,845,87 2 18,773,3 38

1,618,73 2 2,979,60 6 19,368,0 46

5,078,61 3 6,906,96 7 21,966,9 61

6,931,61 5 9,266,67 3 24,581,4 46

7,235,74 9 11,322,5 94 27,681,3 56

3,894,66 2 3,800,56 9 11,161,3 28 29,045,9 71

7,941,52 4 28,492,5 69 46,771,6 71

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Income Statement
2001 2002 2003 2004 2005 2006 2007 2008

Sales - net Cost of sales GROSS PROFIT Other operating income Distribution costs Administrative expenses

6,246,229 (6,237,734) 8,495 36,545 (598,097) (72,383) (625,440)

3,964,326 (2,915,053) 1,049,273 48,145 (523,570) (74,706) 499,142

5,166,515 (4,002,866) 1,163,649 43,401 (580,286) (84,730) 542,034 (156,705) (19,970)

11,462,410 (8,201,623) 3,260,787 107,688 (931,066) (90,653) 2,346,756 (84,817) (113,686) 2,148,25 3

14,254,764 (9,692,236) 4,562,528

14,707,288 (10,023,044) 4,684,244

12,242,888 (7,420,310) 4,822,578

26,820,812 (18,594,752) 8,226,060

(1,257,698) (114,470) 3,190,360 (259,817) (169,746) 2,760,797

(1,420,401) (103,643) 3,160,200 (412,370) (243,074) 2,504,756

(1,068,629) (131,369) 3,622,580 (630,513) (343,813) 2,648,254 -

(1,776,864) -207,383 6,241,813 (2,791,971) (564,516) 2,885,326 133,221

Finance cost Other operating expenses Operating Profit (Loss) Share of profits of associate and joint venture Compensation from GOP Others Financial charges
(4,556) (2,558,636) (2,563,192) (8,850) (338,465) (347,315) 151,827 979,040 1,130,867 2.07 (625,440) 499,142

365,359

455,000

455,000

700,000 454,123

700,000 552,158

600,000 651,675

600,000 786,328

455,000 820,359 380,504 1,200,863 1.31

455,000 2,603,253 (772,161) 1,831,092 1.98

1,154,123 3,914,920 (1,465,811) 2,449,109 2.62

1,252,158 3,756,914 (1,312,056) 2,444,858 2.62

1,251,675 3,899,929 (1,359,896) 2,540,033 2.72

1,519,549 4,404,875 (1,505,254) 2,899,621 3.10

PROFIT BEFORE TAXATION Taxation PROFIT AFTER TAXATION Earnings per share - basic and diluted (Rupees)

(3,188,632) (31,231) (3,219,863) (9.64)

Vertical & Horizontal Analysis

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Vertical Analysis
A method of financial statement analysis in which each entry for each of the three major categories of accounts (assets, liabilities and equities) in a balance sheet is represented as a proportion of the total account.

Vertical Analysis of Balance Sheet
2001
SHARE CAPITAL AND RESERVES Share capital Capital reserve Translation reserve Accumulated loss

2002

2003

2004

2005

2006

2007

2008

17.71 % 1.21% 35.28 % 16.35 %

43.14 % 1.22% 24.09 % 20.26 %

46.98 % 1.18% 17.14 % 31.02 %

42.52 % 1.04% 11.03 % 32.53 %

38.00 % 0.93% 7.49% 31.44 %

33.75 % 0.82% 3.73% 30.84 %

32.16 % 0.79% 3.65% 29.29 %

19.97 % 0.49% 1.22% 0.74% 22.42 %

NON-CURRENT LIABILITIES Long term financing Liabilities against assets subject to finance lease Long term murabaha Deferred tax liability Long term loan Redeemable Capital TOTAL NON-CURRENT LIABILITIES CURRENT LIABILITIES Trade and other payables Mark - up accrued Short term borrowings

13.99 % 0.10% 1.30% 0.10% 28.45 % 10.99 % 39.44 % 48.66 % 19.29 % 68.06 % 43.51 %

10.44 % 0.05% 0.97%

7.63% 0.03% 0.71% 5.38% 29.01 %

5.27% 0.01% 0.49% 9.52% 23.42 %

3.59%

1.34%

35.41 %

0.33% 14.05 % 20.08 %

0.12% 8.97% 11.09 %

58.90 %

46.87 %

42.75 %

38.71 %

38.05 %

21.52 %

4.80% 0.01% 0.71%

9.85% 0.13% 5.36%

11.82 % 0.38% 9.10%

9.66% 0.38% 16.37

8.19% 0.43% 20.23

13.39 % 1.27% 39.03

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%
Current portion of: - Long term financing - Liabilities against assets subject to finance lease - Long term murabaha - Long term loan Sales tax payable TOTAL CURRENT LIABILITIES TOTAL LIABILITIES

% 1.44% 0.01% 0.13% 2.23% 32.65 % 70.71 %

% 0.89% 0.08% 1.39% 56.06 % 77.58 %

1.08% 0.04% 0.10% 3.35% 76.91 % 116.35 % 11.68 % 79.74 % 10.08 % 68.98 %

1.90% 0.03% 0.18% 2.95% 0.21% 20.60 % 67.47 %

1.70% 0.02% 0.16% 2.64% 25.81 % 68.56 %

1.51% 0.01% 0.14% 2.34% 0.04% 30.45 % 69.16 %

CONTINGENCIES AND COMMITMENTS

100.00 100.00 100.00 100.00 100.00 100.00 100.00 % % % % % % % Share capital which is also equity financing was 17.71% in 2001 which is the lowest in all the years mentioned above but it has increased afterwards till year 2004. As the number of shares issued in 2001 was 3,341,100 shares and they have increased it to 9,341,100 shares in 2008. The reason for increasing shares is to raise funds for the company. As the share holder equity section is increasing year by year but in terms of percentage it is going down and it is about 30% of the assets. Long term financing is also falling down which means that the company has increased its capital to overcome its business. Long term financing is a form of financing that is provided for a period of more than a year. Long term financing services are provided to those business entities that face a shortage of capital. In the year 2008, it becomes 1.34% which is the best in comparison of the previous years. There is no redeemable capital after 2002 which tells us that the company position is getting good and strong that they were not in the need of urgent funds by issuing some temporary shares. Trade & other payables are remained consistent while the short term borrowings have increased over the period. It is the loan that a borrower needs to pay back within 12 months. The current liabilities are around 25 to 30% which means that the company is paying off its liabilities within one year.

100.00 %

FAUJI FERTILIZER BIN QASIM LIMITED

4

In the year 2001, the company’s total liabilities were over 100% afterwards it drops to around 75% in the remaining years which means that the company is about 75% debt financed in these years.

2001
FIXED ASSETS Property, plant and equipment Intangible asset Capital work in progress LONG TERM INVESTMENTS LONG TERM DEPOSITS AND DEFERRED COSTS DEFERRED TAX CURRENT ASSETS Stores, spares and loose tools Stock in trade Trade debts Advances Trade deposits and short term prepayments Interest accrued Due from GOP on account of DAP subsidy Other receivables Income and sales tax refundable - net Investments at fair value through profit or loss Short term investments Bank balances TOTAL CURRENT ASSETS

2002 84.17 % 0.25% 0.28%

2003 78.37 % 0.12%

2004 66.19 %

2005 59.24 %

2006 53.94 %

2007 56.66 %

2008 33.88 %

88.55 %

0.18%

0.14% 5.32%

0.13% 5.99%

1.63% 0.08% 0.65%

2.99% 0.07%

5.10% 0.06%

4.86% 0.05%

5.17% 0.03%

2.14% 1.72% 2.96% 2.37%

2.48% 0.70% 3.44% 2.16%

2.35% 1.08% 2.03% 0.06% 0.01% 0.03%

2.37% 1.15% 1.96% 0.94% 0.01% 0.11%

2.35% 4.16% 0.47% 0.15% 0.01% 0.35%

2.88% 2.89% 0.84% 0.22% 0.02% 0.33%

4.36% 2.02% 0.84% 0.27% 0.03% 0.33% 2.51% 1.56%

3.04% 12.14 % 0.61% 0.14% 0.01% 0.14% 26.60 % 1.26%

1.25% 0.21%

1.47% 0.31%

1.37% 0.64%

4.87% 0.91% 1.81%

1.69% 10.89 %

1.06% 9.83%

8.36% 15.38 %

23.12 % 31.44 %

28.20 % 37.70 %

26.14 % 40.90 %

13.41 % 13.08 % 38.43 %

16.98 % 60.92 % 100.00 %

TOTAL ASSETS

100.00 100.00 100.00 100.00 100.00 100.00 100.00 % % % % % % %

FAUJI FERTILIZER BIN QASIM LIMITED

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Fixed assets of the company has deteriorated year by year which was 86% in 2001 and dropped to 34% in 2008 which tells that the company was not interested in buying plants and equipment. Total current assets has also increased year by year which shows that the company has showed interest in increasing stores, spares and loose tools, stock in trade, trade debts etc.

Vertical Analysis of Income Statement
2001 Sales - net Cost of sales GROSS PROFIT Other operating income Distribution costs Administrative expenses Finance cost Other operating expenses -10.01% Share of profits of associate and joint venture Compensation from GOP Others Financial charges PROFIT BEFORE TAXATION Taxation PROFIT AFTER TAXATION 12.59% 100.00% 99.86% 0.14% 0.59% -9.58% -1.16% -10.01% 2002 100.00% 73.53% 26.47% 1.21% -13.21% -1.88% 12.59% 2003 100.00% 77.48% 22.52% 0.84% -11.23% -1.64% 10.49% -3.03% -0.39% 7.07% 2004 100.00% 71.55% 28.45% 0.94% -8.12% -0.79% 20.47% -0.74% -0.99% 18.74% 2005 100.00% 67.99% 32.01% -8.82% -0.80% 22.38% -1.82% -1.19% 19.37% 2006 100.00% 68.15% 31.85% -9.66% -0.70% 21.49% -2.80% -1.65% 17.03% 2007 100.00% 60.61% 39.39% -8.73% -1.07% 29.59% -5.15% -2.81% 21.63% 2008 100.00% 69.33% 30.67% -6.62% -0.77% 23.27% -10.41% -2.10% 10.76% 0.50% 2.24% 2.93%

-0.07% -40.96% -61.06% -0.50% -61.56%

0.00% -0.22% -8.54% 3.83% 24.70% 28.53%

8.81%

3.97%

4.91% 3.19%

4.76% 3.75%

4.90% 5.32%

15.88% 7.36% 23.24%

22.71% -6.74% 15.97%

27.46% -10.28% 17.18%

25.54% -8.92% 16.62%

31.85% -11.11% 20.75%

16.42% -5.61% 10.81%

Cost of goods sold contribution has been decreasing over the year which is a good sign for the company as it is able to control its cost. Selling and administrative expenses contribution has remained which is a positive sign as the firm is able to control its expenses. FAUJI FERTILIZER BIN QASIM LIMITED

4

An important development in 2008 is the amount spent on interest charges which has increased by around 5% due to high debt.

Horizontal Analysis
The process of dividing each expense item of a given year by the same expense item in the base year. This allows for the exploration of changes in the relative importance of expense items over time and the behavior of expense items as sales change.

Horizontal Analysis of Balance Sheet (Base Year 2005)

2005
SHARE CAPITAL AND RESERVES Share capital Capital reserve Translation reserve Accumulated loss

2006

2007

2008

100.00 100.00 100.00 % % % 100.00 100.00 100.00 % % % 100.00 % 56.02 % 57.58 %

100.00 % 100.00 % 18.70 % 135.70 %

TOTAL SHARE HOLDER EQUITY

100.00 110.48 110.11 % % %

NON-CURRENT LIABILITIES Long term financing Liabilities against assets subject to finance lease Long term murabaha

100.00 % 100.00 % 100.00

77.78 % 52.59 % 77.78

55.56 % 0.00% 55.55

33.33 % 0.00% 33.33

FAUJI FERTILIZER BIN QASIM LIMITED

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Deferred tax liability Long term loan Redeemable Capital TOTAL NON-CURRENT LIABILITIES

% % % 100.00 199.23 308.60 % % % 100.00 90.91 81.82 % % % 100.00 101.95 105.18 % % %

% 317.39 % 72.73 % 95.78 %

CURRENT LIABILITIES Trade and other payables Mark - up accrued Short term borrowings Current portion of: - Long term financing - Liabilities against assets subject to finance lease - Long term murabaha - Long term loan Sales tax payable TOTAL CURRENT LIABILITIES TOTAL LIABILITIES

100.00 92.05 81.83 % % % 100.00 111.24 131.31 % % % 100.00 202.62 262.68 % % % 100.00 100.00 100.00 % % % 100.00 64.41 66.03 % % % 100.00 100.00 100.00 % % % 100.00 100.00 100.00 % % % 100.00 132.85 149.47 % % % 100.00 113.59 121.85 % % %

215.58 % 629.15 % 816.27 % 100.00 % 0.00% 100.00 % 100.00 % 413.24 % 215.29 %

CONTINGENCIES AND COMMITMENTS

100.00 112.61 118.16 % % %
FIXED ASSETS Property, plant and equipment Intangible asset Capital work in progress LONG TERM INVESTMENTS LONG TERM DEPOSITS AND DEFERRED COSTS DEFERRED TAX

190.27 %

100.00 102.52 113.01 % % %

108.82 %

100.00 192.18 192.18 % % % 100.00 99.30 87.54 % % %

329.14 % 87.54 %

FAUJI FERTILIZER BIN QASIM LIMITED

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CURRENT ASSETS Stores, spares and loose tools Stock in trade Trade debts Advances Trade deposits and short term prepayments Interest accrued Due from GOP on account of DAP subsidy Other receivables Income and sales tax refundable - net Investments at fair value through profit or loss Short term investments Bank balances TOTAL CURRENT ASSETS

100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 %

138.16 % 78.26 % 200.96 % 161.73 % 152.99 % 106.63 %

219.48 % 57.48 % 211.81 % 210.28 % 256.11 % 112.84 %

246.51 % 554.93 % 248.05 % 170.93 % 147.49 % 76.77 % 175.77 % 0.00%

100.00 400.54 135.05 % % % 100.00 159.89 0.00% % %

100.00 104.39 54.83 % % % 100.00 122.19 120.45 % % % 100.00 112.61 118.16 % % %

114.57 % 307.47 % 190.27 %

TOTAL ASSETS

The total shareholder equity section increased from year 2005 because from year 2005 the company position was becoming better in all perspective. The company’s non-current liabilities increased in year 2006 and 2007 but in 2008 it has deteriorated. Deferred taxation also increased by a huge amount in percentage over the last two to three years. The trade and other payable section has fallen down in 2006 and 2007 but it has increased almost doubled in 2008. The company also increased the short term borrowing amount by a much greater percentage from year 2005 until now which tells the company really increased most of their liabilities in this particular section. So overall the taxation, total liabilities and SHE section increased in much greater percentage from year 2005 till now which tells how much the company increased their liabilities.

FAUJI FERTILIZER BIN QASIM LIMITED

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The percentage increase in the fixed assets was high which tells how much the company has invested to buy more fixed assets to increase their production and sales. The company also invested a lot in the long term investments from year 2005 which was also by a greater proportion which tells how much the company is trying to make money from greater long term projects. So over the last three years we see how much the FFBL has improved in perspective of all kinds of noncurrent and especially current assets and how better they are managing it.

Horizontal Analysis of Income Statement (Base Year 2003)
2003
Sales - net Cost of sales GROSS PROFIT

2004

2005

2006

2007

2008

Other operating income
Distribution costs Administrative expenses

Finance cost Other operating expenses

PROFIT BEFORE TAXATION Taxation

100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 %

221.86 % 204.89 % 280.22 % 248.12 % 160.45 % 106.99 % 432.95 % 54.13% 569.28 % 587.98 % 317.33 % 202.93 % 152.48 %

275.91 % 242.13 % 392.09 % 0.00% 216.74 % 135.10 % 588.59 % 165.80 % 850.01 % 755.64 % 477.22 % 385.23 % 203.95 %

284.67 % 250.40 % 402.55 % 0.00% 244.78 % 122.32 % 583.03 % 263.15 % 1217.2 0% 685.56 % 457.96 % 344.82 % 203.59 %

236.97 % 185.37 % 414.44 % 0.00% 184.16 % 155.04 % 668.33 % 402.36 % 1721.6 5% 724.84 % 475.39 % 357.39 % 211.52 %

519.13 % 464.54 % 706.92 % 0.00% 306.20 % 244.76 % 1151.5 5% 1781.6 7% 2826.8 2% 789.72 % 536.94 % 395.59 % 241.46 %

PROFIT AFTER TAXATION

FAUJI FERTILIZER BIN QASIM LIMITED

4

As we know the FFBL’s financial positions started getting stronger and stronger from year 2003 as they improved in almost all kinds of sections in which they can earn profit by increasing their sales and make more money by buying assets, short term investments and long term investment and huge amount of loans. Since the company bought fixed assets that definitely have improved their production capacity and this was definitely due to much bigger demand and supply. So the company really improved in much greater proportion in increasing their sales from year 2002 and continued their progress until now. Since the increase in sales much in greater proportion as compare to cost of sales the company’s gross profit also rose year after year. With all the increase in the sales and cost of sales the distribution cost also rose with greater proportion as compare to last five years. Due to all the steps taken by the company to reduce their expenses with the increase in the sales that company also made a huge amount of operating profit which better tells the company’s position that how better they are getting year after year. This progress tells us also one more thing that the company will really earn a lot of profit with increased sales the future as well. Other expense also rose with the increase in the sales and as compared to the country’s condition this rise and fall will continue in upcoming years so the company should be aware of it and should have primitive measures for it. Other income also rose which tells how better they are managing in almost neglecting the increase in other expense means that although the other expense also rose but the other income is playing a big role in order to decreases its effects so the overall before tax and after tax profit should be good. The before tax profit was also high year after year from year 2004 and still rising over the last five years. The taxation amount also rose especially in the year 2008 due to the increased taxes but the company’s good progress is not affected by it. The FFBL’s net profit after taxation also rose too much in greater proportion over all the last five years but raised much in year 2008 as compare to the last few years due to the increased in demand and supply.

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Internal Ratio Analysis
2001 2002
0.84 0.56 -0.003 52 29

2003
1.53 1.19 1.77 37 16 91

2004
1.53 1.36 1.89 13 10 73

2005
1.46 1.21 1.76 7 24 91

2006
1.34 1.15 1.13 4 33 91

2007
1.17 0.97 0.78 7 34 122

2008
1.09 0.82 -0.062 4 61 91

LIQUIDITY
Current Ratio Quick Ratio Cash Flow Liquidity Ratio Average Collection Period Average Inventory Days Average Payable Days 0.14 0.09 0.034 33 31

TURNOVER/EFFICIE NCY
Receivable Turnover Inventory Turnover Payable Turnover Fixed Asset Turnover Total Asset Turnover 11 12 0.37 0.33 7 13 0.25 0.21 10 23 4 0.34 0.27 28 37 5 0.79 0.52 52 15 4 0.98 0.58 85 11 4 0.99 0.53 52 11 3 0.74 0.42 101 6 4 1.69 0.57

SOLVENCY/LEVERA GE
Debt Ratio Long Term Debt To Capitalization Ratio Debt To Equity Ratio 79.76% 71% 77% 68.98% 58% 66% 3 67.47 % 52% 59% 26 68.56 % 48% 57% 12 69.16 % 43% 56% 8 70.71 % 41% 56% 6 77.58 % 33% 49% 6

COVERAGE
Times Interest Earned

PROFITABILITY
Gross Profit Margin Operating Margin Net Profit Margin Cash Flow Margin Return On Asset Return On Equity Cash Return On Asset 0.14 -11% -51.54 3% -17.07 26.24 11% 28.62 -5% 7.9 32.83% -0.3% 22.52 10% 23.24 35% 3.85 15.20% 10% 28.44 19% 15.97 31% 6.25 20.92 % 16% 32.01 22% 17.2 29% 8.11 32.93 % 10% 31.85 21% 16.62 15% 7.19 30.06 % 17% 39.39 30% 20.74 30% 7.40 29.80 % 18% 30.67 23% 10.81 -36% 5.37 30.53 % -15%

5%

FAUJI FERTILIZER BIN QASIM LIMITED

4

MARKET
Earnings Per Share Price to Earning Dividend Payout -9.64 -0.34 3.9 2.45 1.31 13.44 1.98 15.45 51.01 2.62 14.56 95.42 2.62 10.81 95.42 2.72 15.46 91.90 3.10 4.16 91.94

The current assets of the company registered a nominal decrease during the year 2008 as compared to year 2007. The major portion of the current assets is attributed to subsidy due from GOP on account of DAP amounting Rs. 12,440 Million, 44% of total current assets. The main reason of this increase is that since July 01, 2008, the subsidy by the government was increased from Rs. 470 per bag to Rs. 2,200 per bag which is payable by the government. Moreover, the stock in trade has been surged from Rs 587 M to Rs. 5,676M as the finished goods in the FY 2008 has been increased due to inclusion of adjustments for writing down the stock to net realizable value. Current liabilities showed a high increase during FY08 as compared to FY 2007. The major portion of the current liabilities is attributed to the short term financing depicting an increase from Rs. 5,875 M in 2007 to Rs. 18,257 M in 2008, by availing running finance facilities from different banks and financial institutions to meet the working capital requirements of company. The company has made a huge investment for expansion of fertilizer producing plants. Moreover, the company availed short-term loans from various banks to fulfill the requirements concerning purchase of raw material and to pile up the inventory as the capacity to stock finished goods has been increased. The business concern maintains current ratio of 1.09, which is adequately above 1:1 indicating the concerns capability to meet its short-term obligations. T he current ratio of FFBL has shown an increase year by year as it was 0.14 times in 2001 and in 2008, it has become 1.09. This is due to increase in assets as it liabilities has also increased but there is a high change in assets as compare to liabilities. The quick ratio has shown an effective increase as it was 0.09 times in 2001 and this increase remained till 2004 which was 1.36 times and afterwards from 2005 till 2008, there is a drop in quick ratio due to high stock in trade, this may be because of inflation. Cash flow liquidity ratio has also increased from year to year but there is a huge decline in the year 2008 because the cash flow from operations has

FAUJI FERTILIZER BIN QASIM LIMITED

4

negative value, this is due to increase in stock in trade also there is an increase in working capital. Inventory turnover days have fluctuated through 2001 till 2007 which was between 25-30 days. It means that there inventory finishes in 25-30 days but there is a problem in the year 2008 as they have increased their inventory level so it took more time to wipe out that is why it has increased as compare to previous years. Not many changes in average payable days as it was 91 days in 2003 and it was remained in its range till 2008. Receivable turnover has improved year by year as it was 11 times in 2001 and in 2008 it became 101 times, this is due to higher sales revenue. The level of inventory turnover was rising from the year 2001 till 2004 and afterwards it dropped to 6 times in 2008. The higher the inventory level, the more time it takes to come to an end. Payable turnover has not shown a significant change as it was same in all years. From 2001 to 2008, there is a slight rise in fixed asset turnover and total asset turnover but both the ratios are close to 1. The concern is one of the largest and renowned fertilizer producing companies and the leverage ratios predict that there is still sufficient cushion available for the client to avail funded facilities. Company’s long-term debt was reduced but on the other side short term financing during the year was increased. The business segment has much appetite to avail more financing from financial institutions.

There is a slight increase in Total Debt- to- Total Assets ratio in the year 2008 as compared to the previous year. In the year 2008, the percentage of debt has been increased through which the assets of the company have been financed as the short term borrowings have been augmented in the FY 08. It means 77.58% of total assets have been financed through debt financing and remaining 22.42% financed through equity financing. The liabilities of a company are higher than of its assets. From 2002-2007 it was around 70% and in 2008 it has reached to the level of around 78%. The total Debt to Equity reported a change in the FY 2008 as compared to the previous year i.e. 49:51, depicting share of financing provided by creditors is slightly lesser than the financing through equity of Company. In the FY 2008, the declined Debt to Equity shows that the liabilities has been decreased

FAUJI FERTILIZER BIN QASIM LIMITED

4

which were availed from different banks for the plant’s expansion purposes and now reducing with the years. However, the net worth of the client has been increased which conclusively improved the ratios in FY 2008.The company has focused on equity financing as compare to debt financing. During the years it has dropped its level of debt and become more equity based as compare to its previous years. In 2008, it was 51% equity based company which was highest as compare to previous years. The company’s sales showed a commendable increase from Rs. 12,242 million in 2007 to Rs. 26,821 million in 2008. During 2008, Sona Urea sales were 686 thousand tones, the highest ever and Sona DAP sales were 307 thousand tones. The increase in cost incurred during the year is mainly due to the increase in consumption of raw material. This improvement is mainly due to the increase in the production capacity of the plants for which the raw material was excessively used to utilize production facility and to meet the market demand. Due to this, gross profit margin of the company shrunk from 39.4% to 30.7% in the FY 2008. However, due to higher sales, the gross profit increased by 71% from Rs 4,822 M in 2007 to Rs. 8,226 M in 2008. Financial cost grew because of increase in short term borrowings from different banks as to procure raw material which can be attributed due to the rising interest rates and tight credit terms, besides the profit after taxation increased from Rs. 2,540 M to Rs. 2,899 million in 2008. Sales for the year 2008 as compared to the year 2007, depicts a growth by 119% due to sale of higher units in the market. Moreover, these sales do not include subsidies which are provided by the government. However, as the prices of DAP in the international market have been declined so it is expected that the prices in the local market will also decline. In this situation, the government will not provide any subsidy as the prices will be within the affordability of farmers. The decrease in prices will enhance the demand in the market and to give further boost to the sales of fertilizer’s manufacturers and influence the yield by the farmers. The profit margin of the company fluctuates in a range of 10-20%. Profitability of the company is dependent on its net income. The higher the income the better the profitability or there is a inverse relation of sales i.e. the lower the sales the higher the profit margin. As the sales increased from 2001 to 2008, it also increased the gross profit of the company and year by year there is a proper growth in the gross profit margin.

FAUJI FERTILIZER BIN QASIM LIMITED

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External Ratio Analysis
LIQUIDITY RATIO
2001
Current Ratio Sector Current Ratio Quick Ratio Sector Quick Ratio Cash Flow Liquidity Ratio Sector Cash Flow Liquidity Ratio Average Collection Period Sector Average Collection Period Average Inventory Days Sector Average Inventory Days Average Payable Days Sector Average Payable Days 0.14 1.62 0.09 1.45 0.034 1.28 33.18 25.37 31 38.97

2002
0.84 2.94 0.56 2.72 -0.003 2.67 52.14 26.73 29 35.89

2003
1.53 2.09 1.19 1.90 1.77 1.71 36.50 40.54 16 23.77 91.25

2004
1.53 2.15 1.36 2.01 1.89 1.76 13.04 32.76 10 17.45 73 89.51

2005
1.46 1.99 1.21 1.67 1.76 1.50 7.02 17.97 24 32.73 91.25 95.18

2006
1.34 1.27 1.15 1.08 1.13 0.88 4.29 14.21 33 31.83 91.25 67.83

2007
1.17 2.09 0.97 1.81 0.78 1.49 7.02 21.71 34 53.75 121.67 83.75

2008
1.09 1.91 0.82 1.59 -0.062 1.09 3.61 4.28 61 48.08 91.25 72.04

64.65

58.34

84.20

FAUJI FERTILIZER BIN QASIM LIMITED

4

Current ratio of the fertilizer sector is too much high as compare to individual current ratio of the company but as we compare it year by year we clearly see that the company has shown an improvement. Quick ratio of the sector is almost double of the company. Here the management of the company has to take some steps to make it close to the sector average. The company is also lagging behind in the cash flow liquidity ratio as in 2008 it is disastrously drop down to negative while the sector average is above 1 which shows that the sector has performed better in terms of cash flows. The sector and the company both have almost fluctuations in their collection period but from past performance of both we can conclude that they both have performed better on yearly basis. But there is a vice versa in the average inventory days, both of them have gone down year by year. An average payable day is almost the same in the company and sector both showed a lot of ups and downs during the period.

EFFICIENCY RATIO
2001
Receivable Turnover Sector Receivable Turnover Inventory Turnover Sector Inventory Turnover Payable Turnover Sector Payable Turnover Fixed Asset Turnover Average Fixed Asset Turnover Total Asset Turnover Sector Total Asset Turnover 11.00 16.36 12.00 10.18 7.36 0.37 4.25 0.33 0.63

2002
6.59 23.00 13.00 11.84 7.02 0.25 3.18 0.21 0.53

2003
9.96 11.28 23.00 16.20 4.31 9.12 0.34 2.84 0.27 0.58

2004
27.83 17.97 37.00 29.72 5.30 10.73 0.79 2.41 0.52 0.63

2005
52.18 33.15 15.00 15.68 3.82 7.56 0.98 2.63 0.58 0.76

2006
84.93 39.33 11.00 13.37 3.59 9.69 0.99 2.17 0.53 0.74

2007
51.55 23.67 11.00 14.44 2.89 12.51 0.74 2.05 0.42 0.54

2008
101.36 88.76 6.00 23.16 4.30 14.33 1.69 2.48 0.57 0.55

FAUJI FERTILIZER BIN QASIM LIMITED

4

Receivable turnover of the company is higher than that of the sector as it is 101 times in 2008 while the sector has 89 times in 2008. The company is better than that of the sector.

There is a problem in inventory turnover of the company as it is too much low than that of sector, this is due to company’s policy they buy inventory at higher prices or they stock too much inventory for future. The company should make some efficient steps in order to better maintain their inventory as well as come at least to the industry average.

Payable turnover was good of a company in comparison of a sector. The fixed asset turnover of a sector is relatively higher than of a company while the total asset turnover was meeting the sector average which tells how better the company is managing its assets.

SOLVENCY/LEVERAGE RATIO
2001
Debt Ratio Sector Debt Ratio Long Term Debt To Capitalization Ratio Sector Long Term Debt To Capitalization Ratio Debt To Equity Ratio Sector Debt To Equity Ratio 27.28 % 12.88 % 92.07 %

2002
79.76% 54.00% 71.00% 30.01% 77.00% 135.56 %

2003
68.98% 53.17% 58.00% 25.18% 66.00% 109.79 %

2004
67.47 % 51.83 % 52.00 % 24.76 % 59.00 % 91.43 %

2005
68.56 % 49.85 % 48.00 % 20.86 % 57.00 % 92.33 %

2006
69.16 % 51.48 % 43.00 % 16.89 % 56.00 % 79.42 %

2007
70.71% 55.49% 41.00% 33.47% 56.00% 121.75 %

2008
77.58% 58.25% 33.00% 36.16% 49.00% 129.36 %

FAUJI FERTILIZER BIN QASIM LIMITED

4

The company debt ratio is higher which is around 70% while the sector average is around 51% , this shows that the company is more leveraged than of the sector while the company is meeting the long term debt to capitalization with the sector which nearly 34% in 2008. As the sector is more debt financed than equity financing, the sector has crossed moreover 100% debt in 2007 and in 2008 it became 129% debt financed while the company focused on equity financing and it is 49% debt financed in 2008 .The sector is almost 125% higher of the company debt financing in 2008.

PROFITABILITY
2001
Gross Profit Margin Sector Gross Profit Margin Operating Margin Sector Operating Margin Net Profit Margin Sector Net Profit Margin Cash Flow Margin Sector Cash Flow Margin Return On Asset Sector Return On Asset Return On Equity Sector Return On Equity Cash Return On Asset Sector Cash Return On Asset 17.71% 5.41% 8.50% 14.00% 30.10% -10.60% 17.53% -51.54% 2.25% 2.80% 12.19% -17.07% 9.49%

2002
26.24 % 33.64 % 11.38 % 23.85 % 28.62 % 21.39 % -5.38% 15.65 % 7.90% 12.49 % 32.83 % 24.30 % -0.32% 8.36%

2003
22.52 % 31.16 % 10.10 % 21.69 % 23.24 % 24.30 % 35.42 % 19.96 % 3.85% 12.81 % 15.20 % 24.10 % 10.38 % 10.39 %

2004
28.44 % 30.43 % 19.48 % 22.53 % 15.97 % 23.39 % 30.51 % 21.88 % 6.25% 12.91 % 20.92 % 24.62 % 16.18 % 8.88%

2005
32.01 % 31.85 % 22.38 % 23.84 % 17.20 % 34.07 % 29.44 % 19.88 % 8.11% 17.65 % 32.93 % 33.29 % 10.44 % 8.31%

2006
31.85 % 30.53 % 21.49 % 22.02 % 16.62 % 24.87 % 15.37 % 6.86% 7.19% 15.30 % 30.06 % 28.44 % 16.98 % 8.98%

2007
39.39 % 33.34 % 29.59 % 25.54 % 20.74 % 63.86 % 29.84 % 14.07 % 7.40% 19.17 % 29.80 % 36.50 % 18.03 % 7.30%

2008
30.67% 34.90% 23.27% 27.78% 10.81% 22.90% -35.63% 3.42% 5.37% 13.68% 30.53% 29.20% -15.18% -2.89%

Not a very much change in GPM of company’s and sector, both of them are head to head. Although OPM is same over the last 4 years. The company has shown improvement in these 4 years to maintain them equal to that of the sector. The sector is enjoying higher profit margin than of company over the years, the company is far behind to the profit margin of the sector which will be due to lack of sales or low profit. Cash flow margin is also low of the company and it has become lowered in the year 2008 which is -35.63% as the sector has dropped in the year 2008 but it is much higher than of the company. Return on asset of the company is relatively lower than of the

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sector but return on equity of the company is relatively close to that of the sector. Cash return on assets is almost higher of the company which means that the company is covering its assets through its return while sector cash return is lower, while year 2008 is not good for both.

MARKET RATIO
2001
Earnings Per Share Sector Earning Per Share Dividend Payout Sector Dividend Payout -9.64 11.457 5 82.48%

2002
3.9 14.8725

2003
1.31 18.35 5 65.29 %

2004
1.98 17.355 51.00% 64.24%

2005
2.62 28.245 95.00% 64.04%

2006
2.62 24.67 95.00% 61.82%

2007
2.72 51.14 91.00% 44.99%

2008
3.1 31.58 91.94% 43.37%

85.94%

EPS of the company was not that good as compared to the sector average which tells that they were not earnings on returned on the initial investment amount. Earnings per share (EPS) are the earnings returned on the initial investment amount. The dividend payout ratio also quiet high over all the years as compared to the sector average. The dividend payout ratio also raised much from year 2004 and until now it was still rising which tells how much better the company is giving their dividend over earnings per share. The investors will be happy from the company so as the management of the company because year after year they have been earning profits and increasing every year.

DuPont Return on Equity
Three Component Disaggregation 4

FAUJI FERTILIZER BIN QASIM LIMITED

200 1 200 2 200 3 200 4 200 5 200 6 200 7 200 8

Net Inc/Sales -51.55% 28.53% 14.44% 12.01% 17.18% 16.62% 20.75% 10.81%

Sales/Avg Assets 0.33 0.21 0.50 0.96 0.61 0.56 0.43 0.71

Net Inc/Avg Assets -17.07% 6.01% 7.20% 11.51% 10.52% 9.36% 8.96% 7.65%

Avg Assets/Avg Equity -6.11 5.46 2.11 1.82 3.13 3.21 3.33 3.99

Net Inc/Avg Equity 104.39% 32.83% 15.20% 20.92% 32.93% 30.06% 29.80% 30.53%

The Du Pont identity breaks down Return on Equity into three or five distinct elements. The return on equity (ROE) ratio is a measure of the rate of return to stockholders. From the above DuPont analysis it is clear that over the past few years the return on equity section of the company has declined. As we see that there is decline in profit margin after year 2002 which has a direct affect on ROE and it has also dropped ROE while the other factors like total asset turnover is under 1 which does not affect ROE as much. The asset/equity ratio is a capital/financial leverage ratio indicating the degree to which assets are internally financed. A higher ratio indicates more outside financing. And it has proved above that the assets/equity ratio is more than 1 which shows ROE is around 30% during last year’s which means that the company is more financially leveraged.

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20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08

N.I/EB T 1.01 7.45 2.04 0.64 0.63 0.65 0.65 0.66

EBT/EB IT 4.82 0.34 0.70 0.96 1.42 1.50 1.47 1.53

EBIT/Sal es -10.60% 11.38% 10.10% 19.48% 19.37% 17.03% 21.63% 10.76%

Five Component Disaggregation N.I/Sal Sales/Avg N.I/Avg es Assets Assets 0.33 -17.07% 51.55 % 28.53 0.21 6.01% % 14.44 0.50 7.20% % 12.01 0.96 11.51% % 17.18 0.61 10.52% % 16.62 0.56 9.36% % 20.75 0.43 8.96% % 10.81 0.71 7.65% %

Avg Assets/Avg Equity 6.11 5.46 2.11 1.82 3.13 3.21 3.33 3.99

N.I/Avg Equity -104.39% 32.83% 15.20% 20.92% 32.93% 30.06% 29.80% 30.53%

Income tax burden has shown a constant trend after 2003. Taxes do not have a role in declining the profitability of the firm. In FFBL’s case it’s pretty remained same which shows its tax structure is not affecting its profitability. There is much increase in financing portion year by year which has a direct affect on company’s profitability as operation’s section has also increased respectively but in the year 2008 operations has declined which has an impact in the profitability. In the turnover section there are ups and downs as in the year 2004 it was reached at its best level and afterwards there is a decline each year till 2007. As we see ROA was 11.51% in 2004 due to high turnover in proportion with others. The asset/equity ratio is a capital/financial leverage ratio indicating the degree to which assets are internally financed. A higher ratio indicates more outside financing. And it has proved above that the assets/equity ratio is more than 1 which shows ROE is around 30% during last year’s which means that the company is more financially leveraged.

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Insight for Investors & Creditors
The fertilizer industry shows great promise in terms of future growth and profitability. The strength of this sector can be derived from the potency of the agricultural sector which is and will be an crucial contributor to Pakistan’s GDP. Moreover the government support, both to the agricultural sector and the fertilizer industry is a mainstay for the coming years as both are vital variables in the social development of the country, Therefore the fertilizer industry offers a safe and lucrative opportunity to the banks. This sector has offered outstanding investor profits and demand is still on the rise as manufacturers expand aggressively to accommodate this increase. So it is probably fair to conclude that the industry has sound fundamentals and significant potential for the future. The government is likely to keep input costs low for sometimes because local manufacturers are determined to pass on all such increases to consumers. This will preserve the industry's growth, expansion and move towards selfsufficiency. However, the fertilizer sector has shown stable and consistent results; with the key players performing extremely well in terms of profitability and being spurred on by racing demand. Fertilizer sector can be categorized as the stable sector even in recessionary conditions due to relatively inelastic demand of urea in the agriculture sector. Also, these companies are obtaining natural gas at a steep discount from

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international gas prices making these unaffected from competition from imports.

Future Projections
The Company is actively looking out for further diversification opportunities by either going for own projects or participating with other investors in opportunities like privatization, Liquefied Natural Gas (LNG) Terminal, Independent Power Projects, Cement Sector etc. Land of 16 Canals has already been acquired at Defence Housing Authority (DHA) PHASE II, Islamabad for the construction of Head Office building. The company is also investing in Fauji Cement Company Limited (FCCL). Fauji Cement Company Limited (FCCL), an Associated Company of FFBL, is in the process of expanding its existing operating capacity from 1.17 MTPA to 3.51 MTPA (200% expansion). The Fauji Cement Brand carries a premium in the market and is perceived as a better quality product. This is why FCCL has been operating at a higher capacity than the industry over the last 5 years. Diversification of business will help FFBL sustain profitability and add to shareholders' value. Since FCCL has issuing fresh equity (at Rs 16 per share having face value of Rs 10 each) in order to finance its expansion project, FFBL has invested an amount of Rs. 300 Million, thereby becoming a 2.7% ordinary shareholder (of revised equity) in FCCL. The plant is scheduled to start its commercial production by the end of first Quarter 2010.

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It is expected that the DAP off take to rise by about 30% next year at around 1 million tones. Deteriorated Urea/DAP application ratio and resultantly lower than expected yields last year, coupled with low prices of DAP would force the off take to rise. Pakistan is having more than enough availability of both DAP and ‘lately imported’ Urea during the first quarter 2009. At current price levels, there does not seem any need of DAP subsidy. Timely disbursement of promised wheat support price to the farmers must be ensured, in order to improve their cash cycle. However, despite challenges mentioned earlier, the company expects to have highest production and sales during 2009 and accordingly, good results by the end of Year 2009.

Recommendation
•Fauji Fertilizer Bin Qasim Ltd. is one of the top Fertilizer production plants of Pakistan enjoying satisfactory reputation throughout the Country. •Fauji Fertilizer Bin Qasim Limited is a subsidiary of Fauji Fertilizer Company Limited (existing client) and the only fertilizer complex in Pakistan producing DAP fertilizer and granular urea making significant contribution towards agricultural growth of the country by meeting 40% demand of DAP and 13% of urea in domestic market. •Investment in Pak-Marco Phosphore (PMP) by FFBL ensures uninterrupted supply of phosphoric acid at a cheaper price, which is a major raw material for manufacturing DAP. •Generally with Pakistan being a net importer for DAP (70% demand met through imports), producers used to have a cost edge over importers owing to fixed cost throughout the year. Being a sole producer of DAP in Pakistan, FFBL avails scores of benefits as compared to other suppliers.

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•FFBL enjoys an assured demand for its domestically manufactured product as well as imports. Strong identity and recognition of brand “Sona” give an edge to FFBL over its competitors. •The adverse factors facing the Economy also affected Company’s performance for the year 2008, but Company achieved the best results in its history under an extremely tough financial and sales environment during the year. •Additionally, the augmented demand gives propensity to fertilizer plants to capture more and more market share and to get leading position in the industry. •The year 2008 under review was yet another vibrant year as our first ever offshore project in Morocco started production of raw material, being used in the manufacturing of DAP fertilizer at our plant in Pakistan so the cost of raw material will further reduce in next year. •As the Company is enjoying strong financial position depicting steady and positive net profit at the rate of almost 14.2% in the FY 2008 as compared to year 2007, the risks associated with the exposure being offered to the concern can be considered at minimum level.

References
http://www.ffbl.com.pk/ http://www.google.com.pk http://en.wikipedia.org/ http://www.kse.com.pk/market-data/history_by_date.php?id=1&sid=1.20 http://www.sbp.org.pk/ http://www.brecorder.com/ http://www.investopedia.com

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Appendix
Balance Sheet
2001
SHARE CAPITAL AND RESERVES Share capital Capital reserve Translation

2002

2003

2004

2005

2006

2007

2008

3,341,10 0 228,350

8,099,01 4 228,350

9,099,01 4 228,350

9,341,10 0 228,350

9,341,10 0 228,350

9,341,10 0 228,350

9,341,10 0 228,350

9,341,10 0 228,350 572,399

FAUJI FERTILIZER BIN QASIM LIMITED

4

reserve Accumulated loss TOTAL SHARE HOLDER EQUITY

6654018 3,084,56 8

4523151 3,804,21 3

3319790 6,007,57 4

2,422,80 8 7,146,64 2

1,841,91 9 7,727,53 1

1,031,75 4 8,537,69 6

1,060,52 3 8,508,92 7

344,522 10,486,3 71

NON-CURRENT LIABILITIES Long term financing Liabilities against assets subject to finance lease Long term murabaha Deferred tax liability Long term loan Redeemable Capital TOTAL NONCURRENT LIABILITIES CURRENT LIABILITIES Trade and other payables Mark - up accrued Short term borrowings Current portion of: - Long term financing - Liabilities against assets subject to finance lease - Long term murabaha - Long term loan Sales tax payable TOTAL CURRENT LIABILITIES TOTAL LIABILITIES

2,710,13 8 19,875

2,293,19 2 11,290

1,876,24 8 6,294

1,459,30 4 3,310

1,042,36 0

625,416

251,408 19,000 5,366,31 4 2,073,50 6 7,439,82 0 9,135,92 7 3,621,32 9 12,776,2 56 8,426,61 0

212,730

174,051 1,322,28 3 7,130,20 8

135,373 2,634,33 9 6,482,00 7

96,694 4,080,52 9 5,833,80 6

58,017 4,196,79 3 5,185,60 5

7,778,40 9

11,408,0 31

10,295,6 21

10,509,0 84

10,714,3 33

11,053,3 89

10,065,8 31

929,295 2,494 137,133

2,163,36 6 27,536 1,176,62 5 416,944 6,467

2,905,99 5 94,348 2,236,64 9 416,944 4,015

2,674,90 3 104,952 4,531,83 6 416,944 2,586

2,377,95 2 123,887 5,875,34 1 416,944 2,651

6,264,66 9 593,586 18,257,0 82 416,944

208,472 7,506

19,340 648,201 14,506,1 25 21,945,9 45 2,192,86 9 14,969,1 25 1,952,44 1 13,360,4 72

38,679 648,201 46,880 4,524,69 8 14,820,3 19

38,679 648,201 6,344,83 1 16,853,9 15

38,679 648,201 11,226 8,429,32 7 19,143,6 60

38,679 648,201 9,483,65 5 20,537,0 44

38,679 648,201 308 26,219,4 69 36,285,3 00

FAUJI FERTILIZER BIN QASIM LIMITED

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CONTINGENCIES AND COMMITMENTS

18,861,3 77
FIXED ASSETS Property, plant and equipment Intangible asset Capital work in progress LONG TERM INVESTMENTS LONG TERM DEPOSITS AND DEFERRED COSTS DEFERRED TAX

18,773,3 38

19,368,0 46

21,966,9 61

24,581,4 46

27,681,3 56

29,045,9 71

46,771,6 71

16,701,9 86

15,801,5 81 47,370 52,228

15,178,8 56 23,686

14,539,3 49

14,563,1 03

14,930,3 39

16,458,2 65

15,847,1 04

358,600 34,496 26,936 25,210 18,518

734,275 17,395

1,411,15 0 17,273

1,411,15 0 15,228

2,416,77 0 15,228

999,351

1,160,68 8

143,527

CURRENT ASSETS Stores, spares and loose tools Stock in trade Trade debts Advances Trade deposits and short term prepayments Interest accrued Due from GOP on account of DAP subsidy Other receivables Income and sales tax refundable net Investments at fair value through profit or loss Short term investments Bank balances

403,797 324,764 558,982 447,177

465,013 130,676 644,967 405,924

455,915 209,511 392,377 11,886 2,590 6,304

520,399 252,252 431,246 207,391 2,340 23,733

577,082 1,022,95 7 115,081 37,816 3,306 85,545

797,314 800,535 231,272 61,160 5,058 91,218

1,266,57 0 587,946 243,751 79,519 8,467 96,526 729,181 454,137

1,422,56 7 5,676,73 9 285,454 64,637 4,876 65,669 12,440,0 60 591,043

241,820 40,471

322,273 68,720

336,266 157,005

1,346,86 7 251,034 502,387

319,121

199,292

1,618,73 2

5,078,61 3

6,931,61 5

7,235,74 9

3,894,66 2 3,800,56 9

7,941,52 4

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TOTAL CURRENT ASSETS TOTAL ASSETS

2,053,84 1 18,861,3 77

1,845,87 2 18,773,3 38

2,979,60 6 19,368,0 46

6,906,96 7 21,966,9 61

9,266,67 3 24,581,4 46

11,322,5 94 27,681,3 56

11,161,3 28 29,045,9 71

28,492,5 69 46,771,6 71

Income Statement
2001 2002 2003 2004 2005 2006 2007 2008

Sales - net Cost of sales GROSS PROFIT Other operating income Distribution costs Administrative expenses

6,246,229 (6,237,734) 8,495 36,545 (598,097) (72,383) (625,440)

3,964,326 (2,915,053) 1,049,273 48,145 (523,570) (74,706) 499,142

5,166,515 (4,002,866) 1,163,649 43,401 (580,286) (84,730) 542,034 (156,705) (19,970)

11,462,410 (8,201,623) 3,260,787 107,688 (931,066) (90,653) 2,346,756 (84,817) (113,686) 2,148,25 3

14,254,764 (9,692,236) 4,562,528

14,707,288 (10,023,044) 4,684,244

12,242,888 (7,420,310) 4,822,578

26,820,812 (18,594,752) 8,226,060

(1,257,698) (114,470) 3,190,360 (259,817) (169,746) 2,760,797

(1,420,401) (103,643) 3,160,200 (412,370) (243,074) 2,504,756

(1,068,629) (131,369) 3,622,580 (630,513) (343,813) 2,648,254 -

(1,776,864) -207,383 6,241,813 (2,791,971) (564,516) 2,885,326 133,221

Finance cost Other operating expenses Operating Profit (Loss) Share of profits of associate and joint venture Compensation from GOP Others Financial charges
(4,556) (2,558,636) (2,563,192) (8,850) (338,465) (347,315) (625,440) 499,142

365,359

455,000

455,000

700,000 454,123

700,000 552,158

600,000 651,675

600,000 786,328

455,000

455,000

1,154,123

1,252,158

1,251,675

1,519,549

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PROFIT BEFORE TAXATION Taxation PROFIT AFTER TAXATION Earnings per share - basic and diluted (Rupees)

(3,188,632) (31,231) (3,219,863) (9.64)

151,827 979,040 1,130,867 2.07

820,359 380,504 1,200,863 1.31

2,603,253 (772,161) 1,831,092 1.98

3,914,920 (1,465,811) 2,449,109 2.62

3,756,914 (1,312,056) 2,444,858 2.62

3,899,929 (1,359,896) 2,540,033 2.72

4,404,875 (1,505,254) 2,899,621 3.10

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