200 9

Analysis of Financial Statements Final Report
Sectorial Analysis of Fauji Fertilizers

Submitted To: Sir Maqbool - Ur - Rehman
Fauji Fertilizers | Institute of Business Management I Fauji Fertilizers

12/29/2009

Acknowledgement
The compilation of this report could not have been realized without the blessings of Almighty Allah. We are highly indebted to quite a few people who have been there from the beginning till the completion of our research. Their undue support has been the source of inspiration for us to complete it efficiently within time. We would deeply like to thank our teacher Mr. Maqbool – Ur - Rehman, Assistant Professor, Finance and Accounting, at I.o.B.M 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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II

Contents
Contents.................................................................................................................... III Company Profile......................................................................................................... 1 Mission Statement ..................................................................................................2 Corporate Vision......................................................................................................2 Manufacturing......................................................................................................... 2 Company Manufacturing Facilities...........................................................................3 Production Facilities................................................................................................3 Production Efficiency...............................................................................................4 Company Product Line................................................................................................5 Fertilizer SECTORAL OUTLOOK...................................................................................6 AGRICULTURE SECTOR............................................................................................6 TYPES OF FERTILIZER..............................................................................................7 GLOBAL SCENARIO..................................................................................................7 PRICING................................................................................................................... 9 International versus Local.....................................................................................10 DAP Prices............................................................................................................. 11 DEMAND & SUPPLY................................................................................................12 TAXES.................................................................................................................... 14 Future Outlook Sales & growth.................................................................................15 Company Financials..................................................................................................16 Balance Sheet....................................................................................................... 16 Income Statement.................................................................................................17 Horizontal & Vertical Analysis...................................................................................18 Vertical Analysis of Balance Sheet........................................................................18 Vertical Analysis of Income Statement..................................................................21 Horizontal Analysis of Balance Sheet....................................................................22 Horizontal Analysis of Income Statement..............................................................25 Component % age Analysis according to % age of Balance Sheet........................27 Component % age Analysis according to % age of Income Statement.................30 Component Percentage Analysis according to Pakistani Rupees of Balance Sheet .............................................................................................................................. 32

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Component Percentage Analysis according to Pakistani Rupees of Income Statement.............................................................................................................. 34 Internal Ratio Analysis..............................................................................................35 LIQUIDITY RATIO....................................................................................................35 TURNOVER/EFFICIENCY RATIO...............................................................................39 SOLVENCY/LEVERAGE RATIO.................................................................................42 COVERAGE RATIO..................................................................................................44 PROFTABILITY RATIO.............................................................................................47 MARKET RATIO......................................................................................................52 External Ratio Analysis.............................................................................................54 LIQUIDITY RATIO....................................................................................................54 TURNOVER/EFFICIENCY RATIO...............................................................................58 SOLVENCY/LEVERAGE RATIO.................................................................................62 .............................................................................................................................. 63 .............................................................................................................................. 64 COVERAGE RATIO..................................................................................................64 PROFTABILITY RATIO.............................................................................................66 .............................................................................................................................. 69 MARKET RATIO......................................................................................................70 DuPont Return on Equity..........................................................................................71 Insight for Investors & Creditors...............................................................................72 Future Projections.....................................................................................................73 Problems & their proposed solutions with the firm...................................................74 References................................................................................................................76 Appendix.................................................................................................................. 77 Internal Ratios of the Company.............................................................................77 External Ratios for Industry Average.....................................................................79

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IV

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V

Company Profile
The overall financial position of the company is stable, over the year which is one of the reason of high efficiency and profitability of FFC. All the profitability ratios are also showing increasing trend on the back of increasing Sales as well as Gross profit which is because of good investments by the company in high yielding projects. Leverage and Liquidity ratios related to FFC are also improving from past to present. If the company would be able to continue its current stability and investments in profitable projects then the company would be able to increase its market share as well as Profitability. With a vision to acquire self sufficiency in fertilizer production in the country, FFC was incorporated in 1978 as a private limited company. This was a joint venture between Fauji Foundation (a leading charitable trust in Pakistan) and Haldor Topsoe A/S of Denmark. The initial authorized capital of the company was 813.9 Million Rupees. The present share capital of the company stands at Rs. 3.0 Billion. Additionally, FFC has Rs. 1.0 Billion stakes in the subsidiary Fauji Fertilizer Bin Qasim Limited (formerly FFC-Jordan Fertilizer Company Limited). FFC commenced commercial production of urea in 1982 with annual capacity of 570,000 metric tons.

Through De-Bottle Necking (DBN) program, the production capacity of the existing plant increased to 695,000 metric tons per year.

Production capacity was enhanced by establishing a second plant in 1993 with annual capacity of 635,000 metric tons of urea.

FFC participated as a major shareholder in a new DAPS/Urea manufacturing complex with participation of major international/national institutions. The new company Fauji Fertilizer Bin Qasim Limited (formerly FFC-Jordan Fertilizer Company Limited)
Fauji Fertilizers | Company Profile 1

commenced commercial production with effect from January 01, 2000. The facility is designed to produce 551,000 metric tons of urea and 445,500 metric tons of DAP.

This excellent performance was due to hard work and dedication of all employees and the progressive approach and support from the top management.

In the year 2002, FFC acquired ex Pak Saudi Fertilizers Limited (PSFL) Urea Plant situated at Mirpur Mathelo, District Ghotki from National Fertilizer Corporation (NFC) through privatization process of the Government of Pakistan.

This acquisition at Rs. 8,151 million represents one of the largest industrial sector transactions in Pakistan.

Mission Statement
FFC is committed to play its leading role in industrial and agricultural advancement in Pakistan by providing quality fertilizers and allied services to its customers and given the passion to excel, take on fresh challenges, set new goals and take initiatives for development of profitable business ventures.

Corporate Vision
FFC vision for the 21st Century remains focused on harmonizing the Company with fresh challenges and encompasses diversification and embarking on ventures within and beyond the territorial limits of the Country in collaboration with leading business partners.

Manufacturing
The largest urea manufacturing facility of Pakistan consisting of two ammonia/urea units owned by FFC is built at Goth Machhi in district Rahim Yar Khan. Goth Machhi is situated at a distance of 2 kms from the main Lahore-Karachi highway and is adjacent to the main railway line.
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The two plants are based on natural gas from Mari Gas Fields and have an annual designed production capacity of 1.3 million tons of urea. Over the years, the plants have demonstrated an operational excellence which has become a reference for the engineering companies whose process technologies are used here. Delegations from China, Middle East and Far East keep visiting the plant site for gaining firsthand knowledge before deciding to purchase a new plant.

Company Manufacturing Facilities
The Company has three plants and is a shareholder in FFBL. It markets the whole production of FFBL. PLANT-I Goth Machhi, Sadiqabad, Rahim Yar Khan PLANT-I Goth Machhi, Sadiqabad, Rahim Yar Khan PLANT-III Mirpur Mathelo PLANT-IV Fauji Fertilizer Bin Qasim Limited

Production Facilities
BASE UNIT-GOTH MACHHI (FFC-1) Start-up: June 1982 Design Capacity Ammonia: 330,000 Met/Year Urea: 570,000 Met/Year REVAMPED BASE UNIT Capacity Enhanced: 1992
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New Capacity Ammonia: 403,000 Met/Year Urea: 695,000 Met/Year EXPANSION UNIT-GOTH MACHHI (FFC-2) Start up: 1993 Design Capacity Ammonia: 363,000 Met/Year Urea: 635,000 Met/Year MIRPUR MATHELO UNIT (FFC-3) (EX-PAKSAUDI FERTILIZER LTD.) Start up: Oct 1980 Acquition by FFC: 31 May, 2002 Merged with FFC: 1 July, 2002 Design Capacity Ammonia: 330,000 Met/Year Urea: 574,000 Met/Year

Production Efficiency
Both the plants have been consistently operating in excess of designed capacity reaching as high 115% for the Base Unit and 119% for the Expansion Unit as a result of high efficient operations, good maintenance and strong technical support.

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Company Product Line
FFC is a leading manufacturing company with over 60% shares of urea manufacturing and marketing in Pakistan. 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 nitro phosphate (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.

SONA Granular o It produces 13% of total production

SONA DAP
o

FFCL produces 31% of country’s demand. It is the sole producer of DAP.

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

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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 nitro phosphate (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 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%.

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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 (FY0206) 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

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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 1,680 by Dec’07.

International versus Local
Urea Prices
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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.

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
Fauji Fertilizers | Appendix 11

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
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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 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.

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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, 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.

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Future Outlook Sales & growth
The future outlook of the fertilizer sector is very strong because of supportive government policies, favorable climatic conditions and gas pricing. The Economic Coordination Committee (ECC) has directed Sui Northern Gas Pipelines Limited (SNGPL) to market an additional 100 million cubic feet a day of natural gas from the Qadirpur gas field, close to both Engro and the FFC. Short term outlook appears encouraging with significant projections for strong demand for our fertilizers. In the long term, the Company is committed to achieve sustained levels of operations at demonstrated operating efficiencies through focus on their fundamental strengths. Customs duty of 5% was withdrawn from imported urea. A similar withdrawal was done on imported DAP fertilizer last year this will not affect local manufacturers The medium to long term projected demand supply gap situation together with commissioning of their BMR projects with enhanced urea production capacities would further consolidate their market presence and allow improved returns to the Company and its stakeholders.

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Company Financials
Balance Sheet
2001 (000’ Rupees) SHARE CAPITAL & RESERVES Share capital Issued, subscribed and fully paid Capital reserve Reserve for issue of bonus shares Revenue reserves Total Shareholder’s Equity Redeemable Capital NON CURRENT LIABILITIES Long Term Liabilities DEFERRED TAXATION CURRENT LIABILITIES Trade and other payables Interest and mark - up accrued Short term borrowings Creditors, accrued & other liabilities Current portion of L.T Fin Taxation Total Liabilities Total Liab. & SHE 2002 (000’ Rupees) 2003 (000’ Rupees) 2004 (000’ Rupees) 2005 (000’ Rupees) 2006 (000’ Rupees) 2007 (000’ Rupees) 2008 (000’ Rupees)

3,000,000 2,564,959 160,000 6,776,673 9,501,632 4,420,014

3,000,000 2,564,959 160,000 8,038,098 10,736,05 7 3,730,650

3,000,000 2,564,959 160,000 8,797,753 11,522,71 2

3,000,000 2,949,703 160,000 8,742,749 12,294,90 7

5,000,000 4,934,742 160,000 7,346,166 12,440,90 8

5,000,000 4,934,742 160,000 7,861,801 12,956,54 3

5,000,000 4,934,742 160,000 7,635,303 12,730,04 5

5,000,000 4,934,742 160,000 7,190,471 12,285,213

223,867 86,000 769,488 800,000 1,561,004 503,151 527,083 4,160,726 13,972,22 5 1,527,227

1,283,481 2,690,000 897,736 3,388,897 2,829,008 917991 975,960 9,009,592 28,166,14 4 9,516,474 1,987,694 7,077,892 50,137 128,495 1,618,373 630,808 1,400,893

784,570 2,522,000 1,218,355 74,233 2,972,333 2,606,854 704,821 329,910 8,659,536 27,219,46 8 9,136,537 1,883,079 7,083,151 63,920 125,511 1,686,980 681,297 1,876,381

2,868,403 2,407,000 5,831,105 74,233 100,000

981,078 2,401,000 6,737,803 81,644 2,504,963

1,193,750 2,396,000 4,025,926 134,039 4,531,090

2,671,250 2,363,526 5,815,276 184,430 3,141,081

5,378,214 2,431,895 5,993,674 194,570 3,114,000

2269162 598,297 8,872,797 26,443,10 7 9,180,716 1,778,464 5,765,699 67,328 3,492 1,727,309 219,180 1,407,736

1887325 1,414,418 12,626,15 3 28,449,13 9 9,184,727 1,673,849 6,058,006 64,545 3,435 2,154,318 560,472 659,713

887,327 1,305,606 10,883,98 8 27,430,28 1 9,607,957 1,569,234 6,409,382 76,647 2,474 2,202,053 952,905 961,427

1,022,500 1,313,106 11,476,39 3 29,241,21 4 10,390,49 0 1,569,234 6,325,129 142,782 2,144 2,407,988 642,836 1,722,602

743,036 1,778,361 11,823,641 31,918,963

Prop, PLANT & Equip GOODWILL LONG TERM INVESTMENTS L.T LOANS & ADVANCES L.T Dep. & Prep CURRENT ASSETS Stores, spares and loose tools Stock in trade Trade debts

12,730,813 1,569,234 7,744,779 163,102 1,524 3,034,268 258,094 495,929

2,491,364 45,369 161,881 1,229,557 614,327 880,298

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Loans & advances Dep. Other Short term investments Cash and bank balances

1,025,100 3,726,744 2,270,358 9,746,384 13,972,22 5

1068419 2,792,279 1,894,680 9,405,452 28,166,14 4

647619 2,200,845 1,834,148 8,927,270 27,219,46 8

671,896 4,565,457 1,055,830 9,647,408 26,443,10 7

Total Assets

722,709 6,195,252 1,172,113 11,464,57 7 28,449,13 9

1,572,123 2,452,850 1,623,229 9,764,587 27,430,28 1

1,660,345 3,027,664 1,350,000 10,811,43 5 29,241,21 4

1,477,792 3,511,563 931,865 9,709,511 31,918,963

Income Statement
2001 (000’ Rupees) Sales Cost of sales GROSS PROFIT Distribution cost Operating Profit Finance cost Other expenses Other income NET PROFIT BEFORE TAXATION Provision for taxation NET PROFIT AFTER TAXATION Earnings per share No. of Shares Outstanding 11,982,41 4 6,362,616 5,619,798 1,022,139 4,597,659 275,271 390,520 3,931,868 1,061,844 4,993,712 1,790,000 3,203,712 12.49 256,496 2002 (000’ Rupees) 16,786,69 9 10,109,11 7 6,677,582 1,457,797 5,219,785 668,213 496,073 4,055,499 783,922 4,839,421 1,766,000 3,073,421 11.98 256,496 2003 (000’ Rupees) 21,034,62 9 13,701,31 9 7,333,310 1,851,170 5,482,140 520,838 488,206 4,473,096 457,413 4,930,509 1,786,000 3,144,509 12.26 256,496 2004 (000’ Rupees) 21,027,03 0 13,157,65 3 7,869,377 1,766,652 6,102,725 372,949 560,494 5,169,282 933,762 6,103,044 2,099,000 4,004,044 8.11 493,474 2005 (000’ Rupees) 25,481,12 1 16,382,71 4 9,098,407 2,371,208 6,727,199 325,999 626,819 5,774,381 1,439,955 7,214,336 2,317,000 4,897,336 9.92 493,474 2006 (000’ Rupees) 29,950,87 3 20,242,19 4 9,708,679 2,746,782 6,961,897 501,241 735,331 5,725,325 1,259,819 6,985,144 2,349,000 4,636,144 9.39 493,474 2007 (000’ Rupees) 28,429,00 5 18,311,52 5 10,117,48 0 2,418,793 7,698,687 703,612 845,327 6,149,748 1,665,205 7,814,953 2,454,000 5,360,953 10.86 493,474 2008 (000’ Rupees) 30,592,806 18,234,692 12,358,114 2,668,571 9,689,543 695,371 895,647 8,098,525 1,942,558 10,041,083 3,516,000 6,525,083 13.22 493,474

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Horizontal & Vertical Analysis
Vertical Analysis of Balance Sheet
2001 SHARE CAPITAL & RESERVES Share capital Issued, subscribed and fully paid Capital reserve Reserve for issue of bonus shares Revenue reserves Total Shareholder’s Equity Redeemable Capital 2002 2003 2004 2005 2006 2007 2008

21.47 % 18.36 % 1.15% 48.50 % 68.00 % 31.63 %

10.65 % 9.11% 0.57% 28.54 % 38.12 % 13.25 %

11.02 % 9.42% 0.59% 32.32 % 42.33 %

11.35 % 11.15 % 0.61% 33.06 % 46.50 %

17.58 % 17.35 % 0.56% 25.82 % 43.73 %

18.23 % 17.99 % 0.58% 28.66 % 47.23 %

17.10 % 16.88 % 0.55% 26.11 % 43.53 %

15.66 % 15.46 % 0.50% 22.53 % 38.49 %

NON CURRENT LIABILITIES Long Term Liabilities DEFERRED TAXATION CURRENT LIABILITIES Trade and other payables Interest and mark - up accrued Short term borrowings Creditors, accrued & other liabilities Current portion of L.T Fin Taxation

1.60% 0.62% 5.51% 0.00% 5.73%

4.56% 9.55% 3.19%

2.88% 9.27% 4.48%

10.85 % 9.10% 22.05 % 0.28% 0.38%

3.45% 8.44% 23.68 % 0.29% 8.81%

4.35% 8.73% 14.68 % 0.49% 16.52 %

9.14% 8.08% 19.89 % 0.63% 10.74 %

16.85 % 7.62% 18.78 % 0.61% 9.76%

Total L & SHE

0.00% 0.27% 12.03 10.92 % % 11.17 10.04 9.58% % % 3.60% 3.26% 2.59% 8.58% 6.63% 3.23% 3.50% 3.77% 3.47% 1.21% 2.26% 4.97% 4.76% 4.49% 29.78 31.99 31.81 33.55 44.38 39.68 39.25 % % % % % % % 100.00 100.00 100.00 100.00 100.00 100.00 100.00 % % % % % % %

2.33% 5.57% 37.04 % 100.00 %

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As we know that FFC is a leading manufacturing company with over 60% shares of urea

manufacturing and marketing in Pakistan. Let see how they progressed in perspective of all their Assets and liabilities over the years. The number of shares issued till 2004 was same after which they increased. The company after 2004 raised some share capital to raise fund as their value was Going Up. Although the shareholder’s equity section was increasing but it was reducing in percentage as compared to the assets section. The reduction was around 20 to 30 percent. The long term liabilities also started increasing from year to year and till 2008 it almost doubles from the previous years. The amount of deferred taxation also was being reduced which seems that the company started paying off their deferred tax instead to defer it to the next upcoming years. In the year 2001 and 2002 we see the redeemable capital which vanished in the upcoming years which tells us the story that the company position is getting good and strong after year 2002 that they were not in the need of urgent funds by issuing some temporary shares. The trade and other payables increased by a huge amount in percentage from year 2004 which tells the company increased the liabilities in greater proportion of percentage over the last six years. The short term borrowing was also been seen but they did not increased that much as the trade and other payables and remained consistent over the years. Creditors, accrued & other liabilities was just seen in the year 2001 and 2002 after which company completely get rid of this liability. The taxation amount was quiet high as around 30 to 40 percent all of the years being analyzed.

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The current liability section was around 30 to 40 percent which tells that the company is been paying most of their liabilities in the one year’s period for the last eight years.

Prop, PLANT & Equip GOODWILL LONG TERM INVESTMENTS L.T LOANS & ADVANCES L.T Dep. & Prep CURRENT ASSETS Stores, spares and loose tools Stock in trade Trade debts Loans & advances Dep. Other Short term investments Cash and bank balances

2001 10.93 % 17.83 % 0.32% 1.16% 8.80% 4.40% 6.30% 7.34% 26.67 % 16.25 % 69.76 % 100.0 0%

2002 33.79 % 7.06% 25.13 % 0.18% 0.46% 5.75% 2.24% 4.97% 3.79% 9.91% 6.73% 33.39 % 100.0 0%

2003 33.57 % 6.92% 26.02 % 0.23% 0.46% 6.20% 2.50% 6.89% 2.38% 8.09% 6.74% 32.80 % 100.0 0%

2004 34.72 % 6.73% 21.80 % 0.25% 0.01% 6.53% 0.83% 5.32% 2.54% 17.27 % 3.99% 36.48 % 100.0 0%

2005 32.28 % 5.88% 21.29 % 0.23% 0.01% 7.57% 1.97% 2.32% 2.54% 21.78 % 4.12% 40.30 % 100.0 0%

2006 35.03 % 5.72% 23.37 % 0.28% 0.01% 8.03% 3.47% 3.50% 5.73% 8.94% 5.92% 35.60 % 100.0 0%

2007 35.53 % 5.37% 21.63 % 0.49% 0.01% 8.23% 2.20% 5.89% 5.68% 10.35 % 4.62% 36.97 % 100.0 0%

2008 39.88 % 4.92% 24.26 % 0.51% 0.00% 9.51% 0.81% 1.55% 4.63% 11.00 % 2.92% 30.42 % 100.0 0%

Total Assets

Since the company position starts getting better from year 2002 the Fixed assets section increased in huge amount which tells us that the company really invested In the buying of the fixed assets for much better capacity and storage so they can improve and increase their production.

Fauji Fertilizers | Appendix

20

The company position as it start getting better and better from year 2002 they also invested lot of their money in the long term investments which tells how better the company is and how much better they are improving financially. The current assets section as it is clear that the stores, spares and loose tools and stock in trade were almost just enough as much they needed. It seems that the company is utilizing their inventory as much they needed. The company also made a lot of percentage in short term investment which tells how much the company is in investing in short term projects to raise more money and this amount was much better in percentage. The current assets section was in the greater proportion as compared to rest of assets that how well the company not in the long term but also in short term is keeping it better in the market and improved their position over the last few years.

Vertical Analysis of Income Statement
2001 Sales Cost of sales GROSS PROFIT Distribution cost Operating Profit Finance cost Other expenses 2002 2003 2004 2005 2006 2007 2008

Other income NET PROFIT BEFORE TAXATION

100.0 0% 53.10 % 46.90 % 8.53% 38.37 % 2.30% 3.26% 32.81 % 8.86% 41.68 %

100.0 0% 60.22 % 39.78 % 8.68% 31.09 % 3.98% 2.96% 24.16 % 4.67% 28.83 %

100.0 0% 65.14 % 34.86 % 8.80% 26.06 % 2.48% 2.32% 21.27 % 2.17% 23.44 %

100.0 0% 62.57 % 37.43 % 8.40% 29.02 % 1.77% 2.67% 24.58 % 4.44% 29.02 %

100.0 0% 64.29 % 35.71 % 9.31% 26.40 % 1.28% 2.46% 22.66 % 5.65% 28.31 %

100.0 0% 67.58 % 32.42 % 9.17% 23.24 % 1.67% 2.46% 19.12 % 4.21% 23.32 %

100.0 0% 64.41 % 35.59 % 8.51% 27.08 % 2.47% 2.97% 21.63 % 5.86% 27.49 % 21

100.0 0% 59.60 % 40.40 % 8.72% 31.67 % 2.27% 2.93% 26.47 % 6.35% 32.82 %

Fauji Fertilizers | Appendix

Provision for taxation NET PROFIT AFTER TAXATION

14.94 % 26.74 %

10.52 % 18.31 %

8.49% 14.95 %

9.98% 19.04 %

9.09% 19.22 %

7.84% 15.48 %

8.63% 18.86 %

11.49 % 21.33 %

As we seen the company’s strengthens from year 2002 it improved in all kinds of section. If we talk about their sales are increasing a lot year after years. So because of this the cost of goods sold also increased in much greater amount but in the year 2008 they not only increased their sales but also reduced the cost of sales expense by around 5 percent which is quiet good for future sales growth the profits. The company also improved year after year in the gross profit section as well which better tells the company how much they improved over the past few years and the big reason for that in not only better sales but also a decline in cost of sales percentage. The company maintained its distribution cost over all the past years which were around 8 to 9 percent. As the company improved in increasing sales and decreasing their cost of sales and maintain their distribution cost they also made a healthier operating profit over the last few years. So because all these reason the company improved in maintain their before tax and after tax profit to a much better position.

Horizontal Analysis of Balance Sheet
2001 SHARE CAPITAL & RESERVES Share capital Issued, subscribed and fully paid Capital reserve 2002 2003 2004 2005 2006 2007 2008

100.00 % 100.00 % 100.00 %

100.00 % 100.00 % 100.00 %

100.00 % 100.00 % 100.00 %

100.00 % 115.00 % 100.00 %

166.67 % 192.39 % 100.00 %

166.67 % 192.39 % 100.00 %

166.67 % 192.39 % 100.00 % 22

166.67 % 192.39 % 100.00 %

Fauji Fertilizers | Appendix

Reserve for issue of bonus shares Revenue reserves Total Shareholder’s Equity Redeemable Capital

100.00 % 100.0 0% 100.00 %

118.61 % 112.99 % 84.40%

129.82 % 121.27 %

129.01 % 129.40 %

108.40 % 130.93 %

116.01 % 136.36 %

112.67 % 133.98 %

106.11 % 129.30 %

NON CURRENT LIABILITIES Long Term Liabilities DEFERRED TAXATION CURRENT LIABILITIES Trade and other payables Interest and mark - up accrued Short term borrowings Creditors, accrued & other liabilities Current portion of L.T Fin Taxation Total Liabilities Total Liab. & SHE 100.0 0% 100.0 0% 100.0 0%

100.00 % 573.32 % 3127.9 1% 116.67 %

61.13 % 350.46 % 2932.5 6% 158.33 % 100.00 % 371.54 % 167.00 % 140.08 % 62.59 % 208.13 % 194.81 % 598.24 % 94.74% 284.31 % 140.89 % 77.53%

223.49 % 1281.3 0% 2798.8 4% 757.79 % 100.00 % 12.50 %

76.44 % 438.24 % 2791.8 6% 875.62 % 109.98 % 313.12 %

93.01 % 533.24 % 2786.0 5% 523.20 % 180.57 % 566.39 %

208.13 % 1193.2 3% 2748.2 9% 755.73 % 248.45 % 392.64 %

419.03 % 2402.4 1% 2827.7 8% 778.92 % 262.11 % 389.25 %

100.0 0% 100.00 % 100.00 % 100.0 0% 100.0 0% 100.0 0% 100.0 0%

423.61 % 181.23 % 182.45 % 185.16 % 216.54 % 201.59 % 623.12 % 100.00 % 284.10 % 110.51 % 79.38%

450.99 % 113.51 % 213.25 % 189.25 % 601.14 % 89.47% 231.43 % 148.40 % 2.16%

375.10 % 268.35 % 303.46 % 203.61 % 601.40 % 84.21% 243.16 % 142.27 % 2.12%

176.35 % 247.70 % 261.59 % 196.32 % 629.11 % 78.95% 257.26 % 168.94 % 1.53%

203.22 % 249.13 % 275.83 % 209.28 % 680.35 % 78.95% 253.88 % 314.71 % 1.32%

147.68 % 337.40 % 284.17 % 228.45 % 833.59 % 78.95% 310.87 % 359.50 % 0.94%

Prop, PLANT & Equip GOODWILL LONG TERM INVESTMENTS L.T LOANS & ADVANCES L.T Dep. & Prep CURRENT ASSETS Stores, spares and loose tools Stock in trade

100.0 0% 100.00 % 100.00 % 100.00 % 100.00 %

131.62 % 102.68 %

137.20 % 110.90 %

140.48 % 35.68%

175.21 % 91.23%

179.09 % 155.11 %

195.84 % 104.64 % 23

246.78 % 42.01%

Fauji Fertilizers | Appendix

Trade debts Loans & advances Dep. Other Short term investments Cash and bank balances Total Current Assets Total Assets

100.00 % 100.00 % 100.0 0% 100.00 % 100.0 0% 100.0 0%

159.14 % 104.23 % 74.93 % 83.45% 96.50 % 201.59 %

213.15 % 63.18% 59.06 % 80.79% 91.60 % 194.81 %

159.92 % 65.54% 122.51 % 46.51% 98.98 % 189.25 %

74.94% 70.50% 166.24 % 51.63% 117.63 % 203.61 %

109.22 % 153.36 % 65.82 % 71.50% 100.19 % 196.32 %

195.68 % 161.97 % 81.24 % 59.46% 110.93 % 209.28 %

56.34% 144.16 % 94.23 % 41.04% 99.62 % 228.45 %

The company increased their share capital in the year 2005 and it is still the same until now. Because of this the company’s issued, subscribed and fully paid section also increased. The total shareholder equity section increased from year 2002 because from year 2002 the company position was becoming better in all perspective. The company’s noncurrent liabilities increased in huge amount from year 2007 and in year 2008. The Long Term Liabilities and deferred taxation also increased by a huge amount in percentage over the last two to three years as compared to last eight years. The trade and other payable section also increased by a huge amount especially from year 2004 so the company increased most of their liabilities in this section. 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 2002 and until now which tells how much the company increased their liabilities. The fixed assets section increased by a very greater proportion in percentage as the company’s position started getting better from year 2002 until now. The percentage increase in the fixed assets was very huge which tells how much the company has invested to buy more fixed assets to increase their production and sales.

Fauji Fertilizers | Appendix

24

The company also invested a lot in the long term investments from year 2002 which was also by a greater proportion which tells how much the company is trying to make money from greater long term projects. The company also made lot of short term investments over the last 7 years as well just like long term investments. So over the last seven years we see how much the FFC 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
2001 Sales Cost of sales GROSS PROFIT Distribution cost Operating Profit Finance cost Other expenses 2002 2003 2004 2005 2006 2007 2008

Other income NET PROFIT BEFORE TAXATION Provision for taxation NET PROFIT AFTER 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 %

140.09 % 158.88 % 118.82 % 142.62 % 113.53 % 242.75 % 127.03 % 103.14 % 73.83 % 96.91 % 98.66 % 95.93 %

175.55 % 215.34 % 130.49 % 181.11 % 119.24 % 189.21 % 125.01 % 113.77 % 43.08 % 98.73 % 99.78 % 98.15 %

175.48 % 206.80 % 140.03 % 172.84 % 132.74 % 135.48 % 143.53 % 131.47 % 87.94 % 122.21 % 117.26 % 124.98 %

212.65 % 257.48 % 161.90 % 231.98 % 146.32 % 118.43 % 160.51 % 146.86 % 135.61 % 144.47 % 129.44 % 152.86 %

249.96 % 318.14 % 172.76 % 268.73 % 151.42 % 182.09 % 188.30 % 145.61 % 118.64 % 139.88 % 131.23 % 144.71 %

237.26 % 287.80 % 180.03 % 236.64 % 167.45 % 255.61 % 216.46 % 156.41 % 156.82 % 156.50 % 137.09 % 167.34 %

255.31 % 286.59 % 219.90 % 261.08 % 210.75 % 252.61 % 229.35 % 205.97 % 182.94 % 201.07 % 196.42 % 203.67 %

As we know the FFC’S position started getting stronger and stronger from year 2002 they improved in almost all kinds of sections in which they can earn profit increase their sales and

Fauji Fertilizers | Appendix

25

make more money by every ways by buying assets, short term investments and long term investment and huge amount of loans. Since the company bought lot of 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. As the increase in the sales we know the cost of sales also increased so the amount of cost of sales was also quiet high but the company did make some efforts in year 2008 to reduce its cost of sales in order to make much more profit. 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 eight 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 up and down 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.
Fauji Fertilizers | Appendix 26

The before tax profit was also high year after year from year 2002 and still rising over the last eight 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 FFC’s net profit after taxation also rose to much greater proportion over all the last eight years but raised much in year 2008 as compare to the last few years due to the increased demand and supply.

Component % age Analysis according to % age of Balance Sheet
2001 SHARE CAPITAL & RESERVES Share capital Issued, subscribed and fully paid Capital reserve Reserve for issue of bonus shares Revenue reserves Total Shareholder’s Equity Redeemable Capital 2002 2003 2004 2005 2006 2007 2008

100.00 % 100.00 % 100.00 %

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

100.00 % 115.00 % 100.00 %

166.67 100.00 % % 167.30 100.00 % % 100.00 100.00 % %

100.00 % 100.00 % 100.00 %

100.00 % 100.00 % 100.00 %

100.00 % 100.0 0% 100.00 %

18.61% 12.99 % 15.60%

9.45% 7.33%

0.63% 6.70%

15.97% 1.19%

7.02% 4.14%

2.88% 1.75%

-5.83% 3.49%

NON CURRENT LIABILITIES Long Term Liabilities DEFERRED TAXATION CURRENT LIABILITIES Trade and other payables

100.0 0% 100.0 0% 100.0 0%

473.32 % 3027.9 1% 16.67 %

38.87 % 6.25% 35.71 %

265.6 0% 4.56% 378.6 0%

65.80 % -0.25%

21.68 % 0.21% 40.25 %

123.7 7% 1.36% 44.45 %

101.3 4% 2.89%

15.55 %

3.07%

Fauji Fertilizers | Appendix

27

Interest and mark - up accrued Short term borrowings Creditors, accrued & other liabilities Current portion of L.T Fin Taxation

100.0 0% 100.00 % 100.0 0% 100.00 % 100.0 0%

100.00 % 323.61 % 12.29 % 81.23% 7.85% 82.45 % 85.16% 116.54 % 101.59 % 523.12 % 23.22 % 66.20 % 3.89% 3.36% 3.99% 5.26% 0.07% 27.49 % 2.32%

0.00% 96.64 % 100.00 % 221.9 5% 81.35 % 2.46% 2.85% 0.48% 5.56% 18.60 % 5.33% 97.22 % 2.39% 67.83 % 24.98 % 3.75% 107.44 % -

9.98% 2404.9 6%

64.17 % 80.88 %

37.59 % 30.68 %

5.50% 0.86%

16.83 % 136.41 % 42.30 % 7.59%

52.98 % 7.69% 13.80 % 3.58% 4.61% 6.25% 5.80% 18.75 % 27.98 % 2.22% 70.02 % 45.73 %

15.23 % 0.57% 5.44% 6.60%

27.33 % 35.43 % 3.03% 9.16%

Total L & SHE

100.0 0% 100.0 0%

Prop, PLANT & Equip GOODWILL LONG TERM INVESTMENTS L.T LOANS & ADVANCES L.T Dep. & Prep CURRENT ASSETS Stores, spares and loose tools Stock in trade Trade debts Loans & advances Dep. Other Short term investments Cash and bank balances

0.04% -5.88% 5.07% -4.13% -1.63%

8.14% 0.00% 1.31% 86.29 % 13.34 % 9.35% 32.54 % 79.17 % 5.61% 23.43 % 28

22.52 % 0.00% 22.44 % 14.23 % 28.92 % 26.01 % 59.85 % 71.21 % 10.99 % 15.98 % -

100.00 % 100.00 % 100.00 %

184.10 % 10.51% 20.62%

100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00

31.62% 2.68% 59.14% 4.23% 25.07% -

4.24% 8.00% 33.94 % 39.39 % 21.18 % -

24.72% 155.71 % 53.14%

7.56% 117.53 % 35.70% 11.01% 60.41 % 38.49

Fauji Fertilizers | Appendix

% 100.0 0% Total Assets 100.0 0%

16.55% -3.50% 101.59 %

3.19% 5.08% 3.36%

42.43 % 8.07% 2.85%

% 18.84 % 7.59% 14.83 % 3.58%

16.83 % 10.72 % 6.60%

30.97 % 10.19 % 9.16%

The revenue reserve is that part of profit that has not been given to the shareholder but retained in the business for further growth. Hence the company increased it in the year 2002 and 2003 by 19 and 10 percent respectively but since the company’s position was getting better and better year after year this revenue reserve declined a lot and still declining as the company is not relying on this particular item. The shareholder’s equity section did rise all the years but in the last two years it declined by 2 and 3.5 percent in year 2007 and 2008 respectively. There was variation in the long term liabilities and deferred taxation but the long term liability rose by a drastic percentage especially in the year 2008 as compared to deferred taxation which rose only by a very fewer percentage. The short term borrowings rose drastically in the year 2005 but later on they declined in the last two years. The total Liability and SHE also rose drastically in the year 2002 but after that it increased at very smaller percentage. The fixed asset portion of the company also rose from year 2002 which was vey vast of around a 523 percent increase and later on it increased at a slow proportion in percentage. But this particular section is still increasing. The firm’s short term and long term investment rose also over the last eight years or so. But the long term investment rose very much I the year 2002 which was almost around a 184 percent increase and the short term investment rose very much in the year 2005 which was almost around a 108 percent increase.

Fauji Fertilizers | Appendix

29

The firm’s Stock in trade and Trade debts also declined by a huge percent in the year 2008 which was around 60 and 70 percent respectively. This tells how better the company is managing their inventory and their decline in the account receivables section. So overall the firm’s total assets rose over the last eight years but they raised much in the year 2002 by around 102 percent which tells that from year 2002 the firm’s position was getting very strong in Pakistan.

Component % age Analysis according to % age of Income Statement
2001 Sales Cost of sales GROSS PROFIT Distribution cost 100.00 % 100.00 % 100.00 % 100.00 % 2002 40.09 % 58.88 % 18.82 % 42.62 % 2003 25.31 % 35.53 % 9.82% 26.98 % 5.03% 22.06 % 1.59% 10.30 % 41.65 % 1.88% 1.13% 2.31% 2004 0.04% 3.97% 7.31% 4.57% 11.32 % 28.39 % 14.81 % 15.56 % 104.14 % 23.78 % 17.53 % 27.33 % 2005 21.18 % 24.51 % 15.62 % 34.22 % 10.23 % 12.59 % 11.83 % 11.71 % 54.21 % 18.21 % 10.39 % 22.31 % 2006 17.54 % 23.56 % 6.71% 15.84 % 3.49% 53.76 % 17.31 % 0.85% 12.51 % 3.18% 1.38% 5.33% 2007 5.08% 9.54% 4.21% 11.94 % 10.58 % 40.37 % 14.96 % 7.41% 32.18 % 11.88 % 4.47% 15.63 % 30 2008 7.61% 0.42% 22.15 % 10.33 % 25.86 % 1.17% 5.95% 31.69 % 16.66 % 28.49 % 43.28 % 21.71 %

Finance cost Other expenses

100.00 13.53 % % 100.00 142.75 % % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 27.03 % 3.14% 26.17 % 3.09% 1.34% 4.07%

Other income NET PROFIT BEFORE TAXATION Provision for taxation NET PROFIT AFTER TAXATION

Fauji Fertilizers | Appendix

The firm’s position is quiet visible which we can measure from its sales which is rising year after year especially from year 2002 which was 40 percent and continuing to increase over the last few years or so. Also with the increase in sales the cost of sales also rise but the company did really well in reducing their cost of sales by almost 10 percent in the year 2007 and around 1 percent in year 2008 which tells that the company is really making efforts in order to increase their sales and reduce their cost of sales in order to increase the gross profit for the longer term and so far they have been successful. The firm’s distribution cost also rose a lot but the company did very well especially in the year 2004 and year 2007 in which they reduced their distributing cost but since in the year 2008 it rose much due to rising oil prices and the deterioration of the economy of Pakistan which affected every organization in Pakistan but the company still did well in order to cope such challenges and did not let such kind of cost disturbs their profits. The company did well in maintaining as well as increasing their operating profit over all the last eight years and this tells us that the company is measuring such steps in order to increase the profitability of the company. The finance cost also rose too much all of the years since they really have taken lot of loans from the creditors but overall this did not affected them that much because in the last few years the short term investments income overcome such costs so the overall effect of this cost was negligible especially since the last five years or so. The other expense rose all over the years but the company did well I order that this particular item do not increase much and effect their profitability and so far over the last eight years or so they did well in order to keep it just enough that does not affect their profitability. Since the firm’s did well in reducing most of their expense and increased sales the company did very well especially in order make a before tax profit much high as compared to the after tax profit. Since the firm is making more profit especially in the year 2008which was very tough for
Fauji Fertilizers | Appendix 31

all the organization in Pakistan but they did still very well although the taxation amount in the year 2008 was quiet high around 44 percent but still made a heavy profit which was a very good thing because the year 2008 was not much that good for most of the organization but they maintained their journey of increased sales and profits and the reduction in most of the expense like cost of sales, distribution expenses etc.

Component Percentage Analysis according to Pakistani Rupees of Balance Sheet
2002 126142 5 123442 5 128348 1 (22386 7) 260400 0 2003 75965 5 78665 5 (49891 1) 2004 (55004) 772195 2005 (13965 83) 146001 2006 515635 515635 2007 (22649 8) (22649 8) 147750 0 2008 (444832 ) (444832 ) 270696 4

Revenue reserves Total Shareholder’s Equity

NON CURRENT LIABILITIES Long Term Liabilities DEFERRED TAXATION

208383 3

(18873 25)

212672

(16800 0)

(11500 0)

(6000)

(5000)

(32474)

68369

CURRENT LIABILITIES Trade and other payables Interest and mark - up accrued Short term borrowings Creditors, accrued & other liabilities Current portion of L.T Fin Taxation Total Liabilities Total Liab. & SHE

128248

32061 9 74233 (41656 4) (22215 4) (21317 0) (64605 0) (35005 6) (94667 6)

461275 0

906698 7411

(27118 77) 52395 202612 7

178935 0 50391 (13900 09)

178398 10140 (27081)

258889 7 126800 4 414840 448877 484886 6 141939 19

(28723 33) (26068 54) 156434 1 268387 213261 (77636 1)

240496 3

(38183 7) 816121 375335 6 200603 2

(99999 8) (10881 2) (17421 65) (10188 58)

135173 7500 592405 181093 3 32

(279464 ) 465255 347248 267774 9

Fauji Fertilizers | Appendix

Prop, PLANT & Equip GOODWILL LONG TERM INVESTMENTS L.T LOANS & ADVANCES L.T Dep. & Prep CURRENT ASSETS Stores, spares and loose tools Stock in trade Trade debts Loans & advances Dep. Other Short term investments Cash and bank balances

798924 7 198769 4 458652 8 4768 (33386)

(37993 7) (10461 5) 5259 13783 (2984)

44179 (10461 5) (13174 52) 3408 (12201 9) 40329 (46211 7) (46864 5) 24277 236461 2 (77831 8) 720138 (77636 1)

4011 (10461 5) 292307 (2783) (57)

423230 (10461 5) 351376 12102 (961)

782533

234032 3

(84253) 66135 (330)

141965 0 20320 (620)

388816 16481 520595 43319 (93446 5) (37567 8) (34093 2) 141939 19

68607 50489 47548 8 (42080 0) (59143 4) (60532 ) (47818 2) (94667 6)

427009 341292 (74802 3) 50813 162979 5 116283 181716 9 200603 2

47735 392433 301714 849414 (37424 02) 451116 (16999 90) (10188 58)

205935 (31006 9) 761175 88222 574814 (27322 9) 104684 8 181093 3

626280 (384742 ) (122667 3) (182553 ) 483899 (418135 ) (110192 4) 267774 9

Total Assets

If we talk about the component percent analysis to dollar of balance sheet we see the revenue reserve section which declined a lot especially in the year 2004, 2005, 2007 and 2008. As we know that the revenue reserve is that part of profit that has not been given to the shareholder but retained in the business for further growth. But since the company started getting better in the early 90’s they started declining this particular item since they did not feel of keeping this particular item. The total shareholder’s equity section also declined a lot especially in the year 2007 and year 2008 which was mostly due to the decline in the revenue reserve portion so this tells that the company was totally shifting mostly towards the debts side as compared to equity portion of the balance sheet.

Fauji Fertilizers | Appendix

33

The deferred taxation amount also declined to very big figures especially from year 2002 till 2007 which tells that company started paying mostly instead of deferring it on the next coming years or so. Overall the total liabilities and SHE section increased most of the year except year 2003, 2004 and year 2006. The asset portion especially the fixed assets increased a lot which tells that the company really invested a lot in order to get machineries properties in order to expand their business with the increasing demand and supply of the country. There was also a lot of long term and short term investment being made by the company in most of the last eight years in order to make more profit and for the betterment of the organization. There was a lot decline in the Cash and bank balances section probably due to the company investing in the long term and short term projects in order to make more profits. Overall the company’s assets rose very much especially in the last two year mean year 2007 and 2008 by almost 1,810,933,000 and 2,677,749,000 Pakistani rupees respectively.

Component Percentage Analysis according to Pakistani Rupees of Income Statement
2002 480428 5 374650 1 105778 4 435658 622126 392942 105553 2003 424793 0 359220 2 655728 393373 262355 (147375 ) (7867) 2004 (7599) (543666 ) 536067 (84518) 620585 (147889 ) 72288 2005 445409 1 322506 1 122903 0 604556 624474 (46950) 66325 2006 446975 2 385948 0 610272 375574 234698 175242 108512 2007 (152186 8) (193066 9) 408801 (327989) 736790 202371 109996 34 2008 2163801 (76833) 2240634 249778 1990856 (8241) 50320

Sales Cost of sales GROSS PROFIT Distribution cost Operating Profit Finance cost Other expenses

Fauji Fertilizers | Appendix

Other income NET PROFIT BEFORE TAXATION Provision for taxation NET PROFIT AFTER TAXATION

123631 (277922 ) (154291 ) (24000) (130291 )

417597 (326509 ) 91088 20000 71088

696186 476349 117253 5 313000 859535

605099 506193 111129 2 218000 893292

(49056) (180136 ) (229192 ) 32000 (261192 )

424423 405386 829809 105000 724809

1948777 277353 2226130 1062000 1164130

If we see the income statement percentage analysis to dollars amount we see that how much the sales amount rose over the last few year or so especially the most sales rose in the year 2003, 2005, 2006 and 2008. Especially in the year 2008 we know how much this difficult year was that for every organization in Pakistan. The cost of sales also rose much is amount but as we see that in year 2007 and 2008 the company did really well in order to reduce the amount with a very greater proportion. Since there was an increase in sales mostly and a reduction in the cost of sales the gross profit rose to vast proportion especially over the last year. The company really made a very good operating profit which in some of the years line 2003, 2004, 2005 and 2008 the finance cost was also less which tells that the company was getting rid from most of their liabilities and wanted to stand on their own. Overall the company enjoyed lot of profits as compared to expense and the company did all the last eight years or so.

Internal Ratio Analysis
LIQUIDITY RATIO

CURRENT RATIO

200 1 2.3 4

2002 1.04

200 3 1.0 3

2004 1.09

2005 0.91

200 6 0.9 0

2007 0.94 35

2008 0.82

Fauji Fertilizers | Appendix

QUICK RATIO CASH FLOW LIQUIDITY RATIO AVERAGE COLLECTION PERIOD AVERAGE INVENTORY DAYS PAYABLE DAYS

2.1 9 1.8 8 26. 82 35. 24 89. 55

0.97 1.04 30.4 6 22.7 8 102. 14

0.9 5 0.7 0 32. 56 18. 15 89. 43

1.06 1.49 24.4 4 6.08 161. 76

0.86 1.07 9.45 12.4 9 150. 12

0.8 1 0.3 4 11. 72 17. 18 72. 59

0.89 0.90 22.1 2 12.8 1 115. 91

0.80 1.07 5.92 5.17 119. 97

Current Ratio:

The current ratio deteriorated from the last four years. The reasons for this are that the current liabilities increased in much greater proportion as compared to current assets. The biggest reason is that the company started the company started increasing more liabilities and the reduction in assets was mostly due to cash and cash balances, trade debts and stock in trade.

Quick Ratio:

Fauji Fertilizers | Appendix

36

The quick ratio as it is clear from the ratios over the last eight years which tells that the company was really quiet good in managing their cash but it is not very good but they maintained it over the last six years or so. Cash Flow Liquidity Ratio:

As we know this ratio is the best ratio for the measure of liquidity of the firm. This tells how much the firm is better in managing their cash and cash equivalents in managing against their current liabilities so overall the last eight years the company did very well in not only maintaining their cash against the company’s current liabilities.
Fauji Fertilizers | Appendix 37

Average Collection Period:

The company was very good in drastic improvement in this particular ratio. One particular reason for this one was the reduction the net account receivables and an increase in sales. The company’s receivables collection came to almost 6 days which phenomenal thing for any organization to improve that much. Average Inventory Days:

The company was very superior in extreme improvement in this particular ratio as well. One particular reason for this one was the reduction the inventory and an increase in cost of sales. The
Fauji Fertilizers | Appendix 38

company’s inventory came to 5 days which is also a dream to achieve as well because we usually do not see such improvement. Payable Days:

The payable days rose too much which tells that the company increased their payables as compared to cost of sales which was declining a little bit since the last two years. The company was not good in managing their payables that much as compared to other two ratios like average inventory days and average collection period.

TURNOVER/EFFICIENCY RATIO
TURNOVER/EFFICIENCY RATIO 2001 2002 2003 2004 13.61 11.98 11.21 14.94 10.36 16.03 20.11 60.03 4.08 3.57 4.08 2.26 7.93 1.79 2.34 2.29 0.86 0.60 0.77 0.80

RECEIVABLE TURNOVER INVENTORY TURNOVER PAYABLE TURNOVER FIXED ASSET TURNOVER TOTAL ASSET TURNOVER

2005 38.62 29.23 2.43 2.77 0.90

2006 31.15 21.24 5.03 3.12 1.09

2007 16.50 28.49 3.15 2.74 0.97

2008 61.69 70.65 3.04 2.40 0.96

Fauji Fertilizers | Appendix

39

Receivables Turnover:

The receivables improved phenomenally by almost 45 times in a year which was a very big improvement as compared to last eight years. This tells how much better the company has improved in managing their receivables into cash. This also tells that the company is very good in receivables collection. It is an important indicator of a company’s financial and operational performance. Inventory Turnover:

The same was with the inventory turnover which also improved severely just like the receivables collection. This tells how much better the company has improved in managing their efficient
Fauji Fertilizers | Appendix 40

management of inventory. This also ensures that the company is very good in managing their inventory as much as been required according the requirements. Payable Turnover:

The payable turnover declined a lot as compared to other two turnover ratios. It is not good for long term as compared to their position and the way they are going this ratio also should be improved so they can better improve this ratio as well.

Fixed Asset Turnover:

Fauji Fertilizers | Appendix

41

The fixed asset turnover was just fine which tells that the company is just fine in managing their fixed assets. The big reason for this that this ratio did not increased that much is due to that the company from the last few years was increasing their fixed asset portion as compared to sales. So the company still was good in managing their assets as compared to sales. Total Asset Turnover:

The total asset turnover was just good which tells that how better the company is efficient in the management of all their assets as compared to sales. The reason for this was because of the increased in both the things one is the sales and the other are the total assets but the total assets increased in much percentage as compared to sales.

SOLVENCY/LEVERAGE RATIO
DEBT RATIO LTD TO CAPITALIZATION DEBT TO EQUITY SOLVENCY/LEVERAGE RATIO 2001 2002 2003 2004 2005 2006 2007 32% 62% 58% 54% 56% 53% 56% 2% 11% 6% 19% 7% 8% 17% 47% 162% 136% 115% 129% 112% 130% 2008 62% 30% 160%

Fauji Fertilizers | Appendix

42

Debt Ratio:

This tells how better the company the how better the company is good in order to pay off their loan in times. The percentage increased in a percentage in as compared from the last five years. This tells that the company increased their debt as compared to total assets. LTD to Capitalization:

This ratio also rose from the last few six years which tells the company increased the long term debts in permanent financing of the firm. Debt implies risk but the company still did very well overall the past few years.
Fauji Fertilizers | Appendix 43

Debt to Equity:

The capital structure of the firm tells us that it is more debt financed as compared to equity financed. There were two reasons for that one is the increase in debt and the other was the decrease in equity.

COVERAGE RATIO
COVERAGE RATIO 2001 2002 2003 16.7 7.81 10.5 0 6.67 13.8 1 7.07 12.3 9 3 3.89 9.43 2004 16.3 6 20.3 1 24.2 0 2005 20.6 4 18.9 5 25.6 6
44

TIMES INTEREST EARNED FIXED CHARGE COVERAGE RATIO CASH COVERAGE

2006 13.8 9 -0.79 5.89

2007 10.9 4 8.40 13.8 8

2008 13.93 11.74 17.23

Fauji Fertilizers | Appendix

CASH FLOW ADEQUACY RATIO Times Interest Earned:

0.61

1.56

0.71

3.50

2.02

-0.06

0.69

0.72

The times interest earned increased in the last few years. This tells that the company was covering their interest expense almost 14 times in a year which is good. The reason for the increase was mostly due to the increase in operating profit as compared to interest expense. Fixed Charge Coverage Ratio:

Fauji Fertilizers | Appendix

45

The fixed charge coverage ratio tells how better the company is good in managing the interest expense from the cash flow from operations. This ratio increased not only because of the increase in cash generated from operations but also because of the reduction in interest expense. Cash Coverage:

The cash coverage was also very good. The company improved very much too almost 17 times to pay the interest paid by the company. So this tells that the company’s ability of the firm to cover its interest payment on taxes by cash improved very much.
Fauji Fertilizers | Appendix 46

Cash Flow Adequacy Ratio:

The cash flow adequacy ratio was just satisfactory as which tells that the company was just not able to pay dividends, capital expenditure and debt repayments from the cash generated by their operations.

PROFTABILITY RATIO
Fauji Fertilizers | Appendix 47

GPM OPM NPM CASH FLOW MARGIN ROE ROA

2001 46.90 % 38.37 % 26.74 % 15.33 % 33.72 % 32.91 % GPM:

PROFTABILITY RATIO 2002 2003 2004 39.78 34.86 37.43 % 31.09 % 18.31 % 28.15 % 28.56 % 18.53 % % 26.06 % 14.95 % 9.64% 27.29 % 20.14 % % 29.02 % 19.04 % 36.02 % 32.57 % 23.08 %

2005 35.71 % 26.40 % 19.22 % 24.24 % 39.36 % 23.65 %

2006 32.42 % 23.24 % 15.48 % -1.32% 35.78 % 25.38 %

2007 35.59 % 27.08 % 18.86 % 20.80 % 42.11 % 26.33 %

2008 40.40% 31.67% 21.33% 26.69% 53.11% 30.36%

The company’s GPM rose to much greater percentage year after year over the last six years. The biggest reason for this was mostly due to the increased profit as compared to the increase in sales. The most reason is mostly due to that the most of the expense reduced over the last two years.
Fauji Fertilizers | Appendix 48

OPM:

The operating profit also rose to much greater percentage over the last six years. The major reason for this was mostly due to the amplified profit as compared to the increase in sales. The most reason for this is same which is mostly due to that the most of the expense reduced over the last two to three years. NPM:

Fauji Fertilizers | Appendix

49

The net profit margin also rose over the past few years. The reason for this is mostly because of reduction in cost of sales and distribution expense. So overall the company did very well in managing and improving their almost all their profits by a much better percentage.

Cash Flow Margin:

This particular ratio also improved especially over the last two years or so and this trend is continuing. The sales were increasing in much proportion as compared to cash flow generated from operations so this ratio does not seems to be increasing that much as compared to other ratios.

Fauji Fertilizers | Appendix

50

ROE:

This particular ratio also increased to a much greater portion as with the other profitability ratios. One reason was same as the increase in net income over the last four years or so and also a decline in the shareholder’s equity section. Roe measures a firm's efficiency at generating profits from every unit of shareholders' equity. The company’s ROE shows how well a company uses investment funds to generate earnings growth.

ROA:

Fauji Fertilizers | Appendix

51

This ratio also improved over all the past years but not that much because of the increase in total assets and the operating profit did not rose that much as the total assets. This ratio is a useful number for comparing competing companies in the same industry. Return on assets is an indicator of how profitable a company is before leverage, and is compared with companies in the same industry.

MARKET RATIO
MARKET RATIO 2001 2002 2003 12.49 11.98 12.26 9.44 8.48 8.81 76% 71% 72%

EPS DPS DIVIDEND PAYOUT

2004 8.11 7.63 94%

2005 9.92 9.84 99%

2006 9.39 7.63 81%

2007 10.86 12.11 112%

2008 13.22 14.24 108%

EPS:

Fauji Fertilizers | Appendix

52

Earnings per share (EPS) are the earnings returned on the initial investment amount. The EPS as it is clear from the above chart that this ratio improved over the last five years or so and still continuing as far seen the position of the company.

DPS:

Dividends Per share also rose to very greater proportion in percentage over the last three years but this is a good improvement especially after year 2003 from which the dividend percentage rose.
Fauji Fertilizers | Appendix 53

Dividend Payout:

The dividend payout ratio also raised much from year 2003 and until now it was still rising which tells how much better the company is giving their Dividend over earnings per share. The trend from the chart seems to be reasonable and 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.

External Ratio Analysis
LIQUIDITY RATIO
LIQUIDITY RATIO 2001 2002 2003 2.34 1.04 1.03 1.62 2.94 2.09 2.19 0.97 0.95 1.45 2.72 1.90 1.88 1.04 0.70 1.28 2.67 1.71 26.82 30.46 32.56

CURRENT RATIO Sectorial Average QUICK RATIO Sectorial Average CASH FLOW LIQUIDITY RATIO Sectorial Average AVERAGE COLLECTION PERIOD

2004 1.09 2.15 1.06 2.01 1.49 1.76 24.44

2005 0.91 1.99 0.86 1.67 1.07 1.50 9.45

2006 0.90 1.27 0.81 1.08 0.34 0.88 11.72

2007 0.94 2.09 0.89 1.81 0.90 1.49 22.12
54

2008 0.82 1.91 0.80 1.59 1.07 1.09 5.92

Fauji Fertilizers | Appendix

Sectorial Average AVERAGE INVENTORY DAYS Sectorial Average PAYABLE DAYS Sectorial Average

25.37 35.24 38.97 89.55 64.64 7

26.73 22.78 35.89 102.1 4 58.33 9

40.54 18.15 23.77 89.43 84.20 3

32.76 6.08 17.45 161.7 6 89.51 1

17.97 12.49 32.73 150.1 2 95.17 8

14.21 17.18 31.83 72.59 67.83 1

21.71 12.81 53.75 115.9 1 83.74 8

4.28 5.17 48.08 119.9 7 72.04 4

If we compare the liquidity ratio of this company with the fertilizer sector we see that the current ratio during the last six years is been 50 percent of the sector which means that the company is way behind the industry average.

Fauji Fertilizers | Appendix

55

But this is not only with the current ratio the past performance of quick ratio is also the same its trend was also 50 percent during the last six years or so. So both the current ratio and the quick ratio seem to lag behind the industry average. As far the position of the company the management should also take some steps to match the industry average so they can lead in every term in Pakistan.

From the cash flow liquidity ratio we can say that the company did very well specially over in the year 2008 to match with the industry average. Since this ratio cash flow liquidity ratio is the best measure of the liquidity of the company. The company did well to at least come towards the industry level.

Fauji Fertilizers | Appendix

56

The average collection period also seems to be very good of the FFC’s which from the graph is visible that the company is meeting the industry average and also competing which is very good for the organization which tells that the company is very good in receivables collection.

But in the average inventory days the company lags behinds very much as compared to the industry average. In the early 90’s the company was good but later on the company lag behind the industry average by more than 50 percent which is not good especially over the last two years.
Fauji Fertilizers | Appendix 57

In the payable days the company led from the front and from the above chart it is clear that the company was way better than the industry average which is very good. So after watching all the liquidity ratios performance the company was fine overall in which they performed well with the industry average but they should try to improve their current and quick ratio as well since there ratios tells how much risky the company is but company position is so good that they should not be doing things like because they are already leading.

TURNOVER/EFFICIENCY RATIO
TURNOVER/EFFICIENCY RATIO 2001 2002 2003 2004 2005 13.6 11.98 11.21 14.94 38.6 1 2 16.3 23.00 11.28 17.97 33.1

RECEIVABLE TURNOVER Sectorial Average

2006 31.15 39.33

2007 16.50 23.67
58

2008 61.69 88.76

Fauji Fertilizers | Appendix

INVENTORY TURNOVER Sectorial Average PAYABLE TURNOVER Sectorial Average FIXED ASSET TURNOVER Sectorial Average TOTAL ASSET TURNOVER Sectorial Average

6 10.3 6 10.1 8 4.08 7.36 7.93 4.25 0.86 0.62 5

16.03 11.84

20.11 16.20

60.03 29.72

3.57 4.08 2.26 7.02 9.12 10.73 1.79 2.34 2.29 3.18 2.84 2.41 0.60 0.77 0.80 0.5302 0.5792 0.6263

5 29.2 3 15.6 8 2.43 7.56 2.77 2.63 0.90 0.75 7

21.24 13.37

28.49 14.44

70.65 23.16 3.04 14.33 2.40 2.48 0.96 0.5513

5.03 3.15 9.69 12.51 3.12 2.74 2.17 2.05 1.09 0.97 0.7409 0.5428

From the receivable turnover it is clear that over the last eight years the company performed very well to meet the industry average which is god for the company as they led and matched the industry average most of the time.

Fauji Fertilizers | Appendix

59

The inventory turnover for the company from the last four years was not that good. The company should make some efficient steps in order to better maintain their inventory as well as come at least to the industry average because the ratios like inventory turnover should be better and should meet the industry average.

The payable turnover of the company was good as compared to the industry average. The company led from the front and from the above chart it is clear that the company was way better than the industry average which is very good.
Fauji Fertilizers | Appendix 60

This particular ratio was meeting the industry average over the last 7 years which tells how better and efficient is the company is managing their fixed assets. That is a good achievement to at least maintain from several years to the industry average.

The total asset turnover of the company was a bit higher as compared to the industry average. So after seeing the turnover ratios we can conclude that the company mostly did very well in not only meeting the industry average but also maintaining from couple of years which is not good
Fauji Fertilizers | Appendix 61

especially in Pakistan to show some consistent performance as far as the economy and condition of Pakistan from some two to three years.

SOLVENCY/LEVERAGE RATIO
SOLVENCY/LEVERAGE RATIO 2001 2002 2003 2004 32% 62% 58% 54% 27% 54% 53% 52% 2% 11% 6% 19% 13% 30% 25% 25% 47% 162% 136% 115% 92% 136% 110% 91%

DEBT RATIO Sectorial Average LTD TO CAPITALIZATION Sectorial Average DEBT TO EQUITY Sectorial Average

2005 56% 50% 7% 21% 129% 92%

2006 53% 51% 8% 17% 112% 79%

2007 56% 55% 17% 33% 130% 122%

2008 62% 58% 30% 36% 160% 129%

The debt ratio of the company seems to meet the industry average and fractionally over the industry average. The percentage increased in a percentage in as compared from the last five years. This tells that the company increased their debt as compared to total assets. But the industry average is almost the same as the FFC’s so it seems that the company is meeting the average industry.

Fauji Fertilizers | Appendix

62

The LTD to capitalization of the company is less than the industry average over the last eight years. This tells the company increased the long term debts in permanent financing of the firm but they kept this ratio a bit less than the industry average.

Fauji Fertilizers | Appendix

63

The debt to equity show the capital structure of the company which is more debt financed than equity financed and the company was bit forward as compared to the industry average over the last seven years.

COVERAGE RATIO
COVERAGE RATIO 2001 2002 16.70 7.81 20.16 5.93 6.67 7.07 23.31 8.30 0.61 1.56 0.76 1.12 2003 10.53 11.53 3.89 27.25 0.71 0.76 2004 16.36 15.58 20.31 13.43 3.50 1.52 2005 20.64 11.56 18.95 13.23 2.02 1.05 2006 13.89 7.77 -0.79 4.96 -0.06 0.25
64

TIMES INTEREST EARNED Sectorial Average FIXED CHARGE COVERAGE RATIO Sectorial Average CASH FLOW ADEQUACY RATIO Sectorial Average

2007 10.94 6.22 8.40 8.29 0.69 0.25

2008 13.93 4.92 11.74 7.50 0.72 1.22

Fauji Fertilizers | Appendix

The time interest earned of the company is way better than the industry average. This tells that the company was covering their interest expense almost better than the industry average which is very good for the company to not only matching industry requirements but also exceeding their levels.

The fixed charge coverage ratio tells how better the company is good in managing the interest expense from the cash flow from operations. As compared to the industry average they are quiet competent as they are meeting the industry average.
Fauji Fertilizers | Appendix 65

The cash flow adequacy ratio of the company was comparable to the industry average. The cash flow adequacy ratio was just satisfactory as which tells that the company was just not able to pay dividends, capital expenditure and debt repayments from the cash generated by their operations.

PROFTABILITY RATIO
PROFTABILITY RATIO 2002 2003 2004 39.78% 34.86% 37.43% 33.64% 31.16% 30.43% 31.09% 26.06% 29.02% 23.85% 21.69% 22.53% 18.31% 14.95% 19.04% 21.39% 24.30% 23.39% 28.15% 9.64% 36.02% 15.65% 19.96% 21.88% 28.56% 27.29% 32.57% 12.49% 12.81% 12.91% 18.53% 20.14% 23.08% 24% 24% 25%

GPM Sectorial Average OPM Sectorial Average NPM Sectorial Average CASH FLOW MARGIN Sectorial Average ROE Sectorial Average ROA Sectorial Average

2001 46.90% 30.10% 38.37% 17.53% 26.74% 2.25% 15.33% 12.19% 33.72% 9.49% 32.91% 18%

2005 35.71% 31.85% 26.40% 23.84% 19.22% 34.07% 24.24% 19.88% 39.36% 17.65% 23.65% 33%

2006 32.42% 30.53% 23.24% 22.02% 15.48% 24.87% -1.32% 6.86% 35.78% 15.30% 25.38% 28%

2007 35.59% 33.34% 27.08% 25.54% 18.86% 63.86% 20.80% 14.07% 42.11% 19.17% 26.33% 37%

2008 40.40% 34.90% 31.67% 27.78% 21.33% 22.90% 26.69% 3.42% 53.11% 13.68% 30.36% 29%

Fauji Fertilizers | Appendix

66

The company’s GPM rose to much greater percentage year after year over the last six years. This tells that all the year the company was ahead of the industry average and enjoying profit every year more than the industry average.

The operating profit was also high This tells that all the year the company was ahead of the industry average and enjoying profit every year more than the industry average. The operating profit also rose to much greater percentage over the last six years.

Fauji Fertilizers | Appendix

67

The net profit margin also rose over the past few years more than the industry average except year 2007 in which the industry made more use of it but overall the industry was inconsistent in performance and maintaining their NPM. The net profit margin also rose over the past few years. The reason for this is mostly because of reduction in cost of sales and distribution expense. So overall the company did very well in managing and improving their almost all their profits by a much better percentage.

Fauji Fertilizers | Appendix

68

This particular ratio also improved especially over the last two years or so and this trend is continuing and it is still better mostly all over the years if compared to the industry average.

This particular ratio also increased to a much greater portion as with the other profitability ratios. The company also led all the last eight years from the front and really exceeded the industry average by quiet a big margin which is not easy to do when your competitors are not that bad.

Fauji Fertilizers | Appendix

69

ROA also kept and maintained the industry average which was good for the company which showed how consistent they were in meeting and mostly exceeding in maintaining the profitability of the company as compared to the industry during the last eight years or so.

MARKET RATIO
MARKET RATIO 2002 2003 2004 11.98 12.26 8.11 14.87 18.36 17.36 71% 72% 94% 85.94% 65.29% 64.24%

EPS Sectorial Average DIVIDEND PAYOUT Sectorial Average

2001 12.49 11.46 76% 82.48%

2005 9.92 28.25 99% 64.04%

2006 9.39 24.67 81% 61.82%

2007 10.86 51.14 112% 44.99%

2008 13.22 31.58 108% 43.37%

EPS of the company was not that good as compared to the industry 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 EPS as it is clear from the above chart that this ratio improved over the last five years or so and still continuing as far seen the position of the company.

Fauji Fertilizers | Appendix

70

The dividend payout ratio also quiet high over all the years as compared to the industry 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 trend from the chart seems to be reasonable and 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
Five Component Disaggregation Profitability Turnover Taxes Financing Operations N.I/EBT EBT/EBIT EBIT/Sales N.I/Sales Sales/Avg.T.A 200 1 200 0.64 0.64 1.09 0.93 38.37% 31.09% 26.74% 18.31% 0.57 0.80 Solvency N.I/Avg. T.A 15.21% 14.59% Avg. T.A/Avg. S.E 2.22 1.96
71

ROE N.I/Avg. S.E 33.72% 28.56%

Fauji Fertilizers | Appendix

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

0.64 0.66 0.68 0.66 0.69 0.65

0.90 1.00 1.07 1.00 1.02 1.04

26.06% 29.02% 26.40% 23.24% 27.08% 31.67%

14.95% 19.04% 19.22% 15.48% 18.86% 21.33%

0.76 0.78 0.93 1.07 1.00 1.00

11.35% 14.92% 17.84% 16.59% 18.92% 21.34%

2.40 2.18 2.21 2.16 2.23 2.49

27.29% 32.57% 39.36% 35.78% 42.11% 53.11%

The Du Pont identity breaks down Return on Equity five distinct elements. The return on equity (ROE) ratio is a measure of the rate of return to stockholders. From the above table it is clear from the above DuPont analysis that over the past few years the return on equity section of the company rose very much. We see the N.I/EBT column over the last eight years remained consistent and the same was with the EBT/EBIT section and we did not see much bigger changes in this column as well. If we now talk about EBIT/Sales and N.I/Sales this section was sound as well as it is clear from the above table that overall the last eight years the company did well in maintaining it as well. Although the Sales/Avg. totals assets section we saw changes but they also became to better position during the last few years. The N.I/Avg. T.A, Avg. T.A/Avg. S.E we also see that there was no problem in these two columns as well they were consistent and became better and better over the last two years especially. So the DuPont analysis of this company tells us the company is very good in all kinds of distinct elements and this tells how better the company is.

Insight for Investors & Creditors
Looking at Pakistan's corporate earnings over the past year and the story they tell for the future leaves investors with a lot left to hope for. Most sectors of the economy proved disappointing for shareholders, with some sectors being completely inactive. Amidst such a market, however, the
Fauji Fertilizers | Appendix 72

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. The government is likely to keep input costs low for some time to come because local manufacturers are determined to pass on all such increases to consumers. This will preserve the industry's growth, expansion and move towards self-sufficiency; the entry barriers for new firms have already been discussed. This sector has offered excellent shareholder returns 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. A particularly bright spot for the sector is the capacity for the export of fertilizer; if investors are worried about over-supply in the next few years, both India and China are the world's largest urea importers, and other markets such as Iran, Bangladesh, Sri Lanka and Thailand are also not too far away.

Future Projections
FFC has progressed remarkably from its inception in 1978 till to date. Three projects in a Span of less than 20 years have been set up. Each of these have incurred an investment of Over 300 million US$ amounting to one of the largest investments in Pakistan. This Performance record is considered unparalleled in the country and matches high standards anywhere in the world. At
Fauji Fertilizers | Appendix 73

this point in time, the company is preparing to harmonize itself with new century. Building on the foundations of the last 20 years, the company is confident to take on the new challenges. FFC’s vision for the 21st century looks for diversification and establishing projects beyond the territorial limits of the country in collaboration with world famous international industrial holdings. The list of different projects that are being evaluated at present are: • • • • • • • Oil Refinery Paper Mill Project Software Development House Off-Shore Fertilizer Complex Mineral Acid Production Petrochemical refurbish of existing FFC facilities

Problems & their proposed solutions with the firm
During the peak demand period the three urea manufacturers, Engro, Fauji and Pak Saudi, face serious logistic problems. This include availability of trucks and railway wagons, heavy traffic and frequent traffic jams on National Highway as all these units are located within a radius of
Fauji Fertilizers | Appendix 74

100 kilometers. The manufacturers have been demanding, for a long time, of the government to expand the roads but the problem still persists. Size of the company is very large which produces administrative problems. The company should focus on this particular problem because if this one is improved the company will improve more financially. There are new competitors in the industry. Adding some new unit can enhance the production capacity of the plants. Company is in a position to set up a new plant in the country. Having a strong financial position company can start production of the new product line. No availability of railway wagons. The company should take some steps with the government in order to improve their distribution and reduce their expense more as they are doing it without it. There is an unstable use of fertilizer. Due to rising demand the company is importing urea instead of producing. The company should try to increase their capacity by adding more units. Adding some new unit can enhance the production capacity of the plants. Having a strong financial position company can start production of the new product line. If FFC decides for the export of Urea it can earn much better revenues. Availability of natural gas from Iran can help setting up a new Urea plant in that vicinity and thus meeting the demand of Urea in the country at cheap Rates. There is a phenomenal increase in the prices of basic feedstock’s. Of this problem there is no such solution because since there is a lot of global disorder going all over the world this particular effect will be solved later. There is a difficult coexistence between public and private fertilizer producer/importer. Future fertilizer demand the company’s position is so better that they should try to add more units as the company is financially very strong. Company is having strong dealer network all
Fauji Fertilizers | Appendix 75

over country that helps in proper availability even in far-flung areas.FFC has developed a well planned network of 170 field warehouses to ensure that fertilizers is available to the farmers uninterrupted.

References
http://www.ffc.com.pk/contents/annualrep.htm http://www.google.com.pk
Fauji Fertilizers | Appendix 76

http://en.wikipedia.org/wiki/EPS 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/

Appendix
Internal Ratios of the Company

Fauji Fertilizers | Appendix

77

CURRENT RATIO QUICK RATIO CASH FLOW LIQUIDITY RATIO AVERAGE COLLECTION PERIOD AVERAGE INVENTORY DAYS PAYABLE DAYS

LIQUIDITY RATIO 2001 2002 2003 2004 2.34 1.04 1.03 1.09 2.19 0.97 0.95 1.06 1.88 1.04 0.70 1.49 26.82 30.46 32.56 24.44 35.24 22.78 18.15 6.08 89.55 102.14 89.43 161.76 TURNOVER/EFFICIENCY RATIO 2001 2002 2003 2004 13.61 11.98 11.21 14.94 10.36 16.03 20.11 60.03 4.08 3.57 4.08 2.26 7.93 1.79 2.34 2.29 0.86 0.60 0.77 0.80 SOLVENCY/LEVERAGE RATIO 2001 2002 2003 2004 32% 62% 58% 54% 2% 11% 6% 19% 47% 162% 136% 115% COVERAGE RATIO 2001 2002 2003 2004 16.70 7.81 10.53 16.36 6.67 7.07 3.89 20.31 13.81 0.61 12.39 1.56 9.43 0.71 24.20 3.50

2005 0.91 0.86 1.07 9.45 12.49 150.12

2006 0.90 0.81 0.34 11.72 17.18 72.59

2007 0.94 0.89 0.90 22.12 12.81 115.91

2008 0.82 0.80 1.07 5.92 5.17 119.97

RECEIVABLE TURNOVER INVENTORY TURNOVER PAYABLE TURNOVER FIXED ASSET TURNOVER TOTAL ASSET TURNOVER

2005 38.62 29.23 2.43 2.77 0.90

2006 31.15 21.24 5.03 3.12 1.09

2007 16.50 28.49 3.15 2.74 0.97

2008 61.69 70.65 3.04 2.40 0.96

DEBT RATIO LTD TO CAPITALIZATION DEBT TO EQUITY

2005 56% 7% 129%

2006 53% 8% 112%

2007 56% 17% 130%

2008 62% 30% 160%

TIMES INTEREST EARNED FIXED CHARGE COVERAGE RATIO CASH COVERAGE CASH FLOW ADEQUACY RATIO

2005 20.64 18.95 25.66 2.02

2006 13.89 -0.79 5.89 -0.06

2007 10.94 8.40 13.88 0.69

2008 13.93 11.74 17.23 0.72

GPM OPM NPM CASH FLOW MARGIN ROE

PROFTABILITY RATIO 2001 2002 2003 2004 46.90 39.78 34.86 37.43 % % % % 38.37 31.09 26.06 29.02 % % % % 26.74 18.31 14.95 19.04 % % % % 15.33 28.15 9.64% 36.02 % % % 33.72 28.56 27.29 32.57

2005 35.71 % 26.40 % 19.22 % 24.24 % 39.36

2006 32.42 % 23.24 % 15.48 % -1.32% 35.78

2007 35.59 % 27.08 % 18.86 % 20.80 % 42.11
78

2008 40.40% 31.67% 21.33% 26.69% 53.11%

Fauji Fertilizers | Appendix

ROA

% 32.91 %

% 18.53 %

% 20.14 %

% 23.08 %

% 23.65 %

% 25.38 %

% 26.33 %

30.36%

EPS DPS DIVIDEND PAYOUT

MARKET RATIO 2001 2002 2003 12.49 11.98 12.26 9.44 8.48 8.81 76% 71% 72%

2004 8.11 7.63 94%

2005 9.92 9.84 99%

2006 9.39 7.63 81%

2007 10.86 12.11 112%

2008 13.22 14.24 108%

External Ratios for Industry Average
2001 LIQUIDITY
Fauji Fertilizers | Appendix 79

2002

2003

2004

2005

2006

2007

2008

Current Ratio Quick Ratio Cash Flow Liquidity Ratio Average Collection Period Average Inventory Days Average Payable Days TURNOVER/EFFICIENCY Receivables Turnover Inventory Turnover Payable Turnover Fixed Asset Turnover Total Asset Turnover SOLVENCY/LEVERAGE Debt Ratio Long Term Debt To Capitalization Debt To Equity Ratio

1.62 1.45 1.28 25.37 38.97 64.65

2.94 2.72 2.67 26.73 35.89 58.34

2.09 1.90 1.71 40.54 23.77 84.20

2.15 2.01 1.76 32.76 17.45 89.51

1.99 1.67 1.50 17.97 32.73 95.18

1.27 1.08 0.88 14.21 31.83 67.83

2.09 1.81 1.49 21.71 53.75 83.75

1.91 1.59 1.09 4.28 48.08 72.04

16.36 10.18 7.36 4.25 0.63

23.00 11.84 7.02 3.18 0.53

11.28 16.20 9.12 2.84 0.58

17.97 29.72 10.73 2.41 0.63

33.15 15.68 7.56 2.63 0.76

39.33 13.37 9.69 2.17 0.74

23.67 14.44 12.51 2.05 0.54

88.76 23.16 14.33 2.48 0.55

27.28 % 12.88 % 92.07 %

54.00% 30.01% 135.56 %

53.17% 25.18% 109.79 %

51.83 % 24.76 % 91.43 %

49.85 % 20.86 % 92.33 %

51.48 % 16.89 % 79.42 %

55.49% 33.47% 121.75 %

58.25% 36.16% 129.36%

COVERAGE Times Interest Earned Cash Coverage Ratio Fixed Charge Coverage Ratio Cash Flow Adequacy Ratio PROFTABILITY Gross Profit Margin Operating Margin Net Profit Margin Cash Flow Margin Return On Asset Return On Equity Cash Return On Asset

20.16 23.31 23.88 0.76

5.93 8.30 486.61 1.12

11.53 27.25 14.67 0.76

15.58 13.43 14.10 1.52

11.56 13.23 11.52 1.05

7.77 4.96 0.57 0.25

6.22 8.29 5.24 0.25

4.92 7.50 4.36 1.22

30.10 % 17.53 % 2.25% 12.19 % 9.49% 17.71 % 8.50%

33.64% 23.85% 21.39% 15.65% 12.49% 24.30% 8.36%

31.16% 21.69% 24.30% 19.96% 12.81% 24.10% 10.39%

30.43 % 22.53 % 23.39 % 21.88 % 12.91 % 24.62 % 8.88%

31.85 % 23.84 % 34.07 % 19.88 % 17.65 % 33.29 % 8.31%

30.53 % 22.02 % 24.87 % 6.86% 15.30 % 28.44 % 8.98%

33.34% 25.54% 63.86% 14.07% 19.17% 36.50% 7.30%
80

34.90% 27.78% 22.90% 3.42% 13.68% 29.20% -2.89%

Fauji Fertilizers | Appendix

MARKET Earnings Per Share Price to Earning Dividend Payout Dividend Yield

11.46 4.12 82.48 % 12.75 %

14.87 7.00 85.94% 7.30%

18.36 9.24 65.29% 7.10%

17.36 10.60 64.24 % 29.97 %

28.25 8.46 64.04 % 5.01%

24.67 8.69 61.82 % 16.19 %

51.14 7.58 44.99% 1.68%

31.58 4.86 43.37% 3.60%

Fauji Fertilizers | Appendix

81

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