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Net profit
Net profit stood at Rs 14.44 billion as compared to Rs 11.78 billion in 2016.the company remained
under pressure till 2017 owing to persistent government intervention in product pricing, higher
finance cost, lower dividend income and higher taxation charge on urea and imported fertilizer. Net
profit improved by 35% from 2017 due to revival of fertilizer selling prices and reduced finance cost.
Vertical analysis
Statement of profit and loss
Gross Profit
the revenue increased from Rs 72.87 billion in 2013 to Rs 105.96 in 2018 and so does the gross profit
Taxation
Taxation charge stood at 6.84% of the revenue in 2018 as compared to 7.70 % in 2016. Variation in
the taxation charge remained in line with profitability of the Company. The effect of gradual
reduction in applicable corporate tax rates however, it was subdued by the levy of super tax and
Final /Minimum tax regimes on imported fertilizer.
Net Profit
Net profit increased to Rs 14.44 billion in 2018 mainly but overall decrease in percentage of profit
over the years because of increase in operating costs as explained above, which could not be passed
on owing to persistent Governmental pressures in addition to decline in divined income, higher
finance cost and higher tax charge on imported fertilizers.
Horizontal analysis of balance sheet
Statement of Financial Position
Shareholders’ Equity
FFC’s share capital remained unchanged during the last three years at Rs 12.72 billion. Reserves
witnessed gradual increase over the past three years on account of higher profit retention to finance
the capital expenditure and diversification projects which are currently in various phases of
completion. Resultantly, shareholders’ equity stood at Rs 33.38 billion with an increase of 22% since
2015.
Non-Current Liabilities
Non-current liabilities comprising of long term borrowings and deferred liabilities, less further long
term borrowings were obtained during 2018 in comparison to previous year. FFC settled long term
debt of Rs 6.6 billion on maturity dates. Consequently, non-current liabilities recorded a decrease of
35% to Rs 13.16 billion since 2015.
Current Liabilities
Under the current liabilities, trade and other payables increased because in October 2016, under the
Court’s rulings, GIDC payments were withheld which resulted in an increased balance of trade and
other payables to Rs 60.60 billion at the close of 2018. Current maturity of long term borrowings also
increased in 2018. owing to upcoming maturity of long term borrowings obtained in 2015 and 2016.
Short term borrowings availed towards the year end resulted in increased liability of Rs 28.53 billion
at December 31, 2018.
Non-Current Assets
Property, plant & equipment, intangible assets and long term investments constitute the Company’s
non-current assets. Investment in gas compression projects under the Company’s sustainability plan
besides routine capital expenditure has resulted in net increase of Rs 3.09 billion since 2013 to Rs
21.53 billion in property, plant and equipment.but slight increase is seen since 2015.
Current Assets
due to higher production of fertilizers and suppressed market conditions. Consistent efforts by the
Company resulted in alleviating the adverse market conditions and the industry started to normalize
during the second half of 2017, with FFC successfully offloading its entire imported fertilizer stock
and carried minimal stock in trade valued at Rs 395 million. Similarly, trade debts also reduced to Rs
3.72 billion, 14% lower than the 2016, owing to timely recovery of balances during the year and
better cash sales ratio towards the end of the year. Stock in trade increased to Rs 12.93 billion in
2018 mainly due to higher inventory of DAP carried by the Company to meet anticipated demand for
the year 2019. Short term investments increased. However, in view of better cash availability and
attractive returns on placements with financial institutions, short term investments increased to Rs
54.59 billion in 2018. Subsequent to the announcement of fertilizer subsidy scheme from 2015
onwards, unadjusted input sales tax and outstanding subsidy receivable from the Government other
receivables have substantially increased over the years and stood at Rs 15.73 billion at the close of
2018.
Vertical analysis of balance sheet
Statement of Financial Position
Trade and Other Payable
Trade and other payable increased from Rs 10.5 billion in 2016 to Rs 60.60 billion in 2018 mainly due
to retention of GIDC obligation under Court’s ruling. Property, Plant and Equipment Property Plant
and Equipment increased from Rs 21.23 billion in 2016 to Rs 21.53 billion in 2018
Long-term investments
Long-term investments of the Company decreased from Rs 29.66 billion in 2016 to Rs 26.90 billion in
2018 .
Other receivables
Long outstanding subsidy receivable and unadjusted sales tax receivable from the Government
resulted in increase in balance of Other receivables from Rs 7.70 billion in 2013 to Rs 15.73 billion at
the end of 2018.
Short-term investment increased from Rs14.14 billion in 2013 to Rs 54.59 billion in 2018 mainly due
to improved liquidity position.
Liquidity ratios
The current ratio of 0.95 times improved over last three years average of 0.93 times owing to
increase in short term investments. Quick ratio of 0.79 times, has remained on the three year
average of 0.79 times, but has recorded a decline from 2017 by 0.09 times owing to higher closing
inventory of DAP.
PROFITABILITY RATIOS
The Company’s revenue has had a consistent increase by barring the year 2016 when revenue
declined owing to Governmental pricing intervention. Improvements in selling prices eased the
pressures on gross margins (excluding subsidy), which were recorded at 26.40% in 2018 compared to
19.95% earned in 2017. Net profit margins remained pressurized since 2015 owing to higher finance
cost, lower dividend income and higher tax charge on imported fertilizers, however consistent cost
controls, improved fertilizer market resulted in a net margin of 13.63% compared to 11.81%
recorded in 2017.
These values compliment the highest Return on Equity of 43.25% in 2018 after a decline in 2017.
This shows positive growth in the performance in terms of profitability.
ACTIVITY RATIOS
Revival of customary urea demand has resulted in improvement of market dynamics, hence despite
higher record revenue the Company has successfully curtailed credit sales, leading to increased
debtors turnover from 23 times in 2017 to 29 times in the 2018. Creditor turnover days have
increased to 156 days compared.
Market/Book Ratio:
The Company’s share traded on Pakistan Stock exchange in the range of Rs 79.05 to Rs 103.68 with
closing rate at balance sheet date of Rs 92.85 compared to Rs 79.11 at the close of 2017. The share
price to earnings ratio remained at 8.18 times against three years average of 9.61 times showing a
decrease in the ratio in the year 2018.
Debt Ratio
Debt to equity ratio improved to 20:80 against 35:65 recorded in 2017 owing to repayment of long
term debt. Low finance cost due to reduced borrowing improved interest cover ratio to 14.25 times
compared to three years’ average of 9.97 times.
Cash Flow Analysis:
Investing activities mainly comprise of equity investments in subsidiaries and associates in addition
to capital expenditure and long / short term investments. Cash outflows on capital expenditure has
been in line with the need to maintain reliable and sustained operations from its production facilities
over the past 3 years. Cash outflow on investments increased considerably during the year due to
improved liquidity, while inflows from dividends declined due to lower dividend payout by our
associated companies.
Cash Flows from Financing Activities
Financing cash flows mainly consisting of proceeds / repayment of long term loans in addition to our
demonstrated commitment of sustained shareholders’ returns in form of attractive dividend payout
every year. Dividend payout is primarily responsible for net cash used in financing activities. Net cash
utilization of Rs 16.49 billion in the current year increased from Rs 9.24 billion recorded in 2017
because of loan repayments on due dates and dividend payout while no long term debt has been
obtained during 2018.
After revival of the customary urea demand the Company generated net cash from operations of Rs
34.71 billion in 2017. Cash flow from operations in the year 2018 were recorded at Rs 22.87 billion.
Owing to the overall decrease in the cash flow from operating activities, financing activities
and investing activities, less cash was available to FFC in the year 2018 leading to a
decreased amount of Free Cash Flow of 26,889 million showing a decrease of 7,393 million
compared to average FCF of past three years of 23,606 million
DuPont Analysis (2018):
Total assets increased by 35% driven by increase in stock in trade and short-term investments,
whereas owner’s equity witnessed an increase of 14% resulting in an ownership ratio of 23% and the
Return on Assets of 10%. Sales Revenue resisted a growth of 17% mainly due to revival of selling
price after 2 years of depressed market conditions. Improved liquidity position. Efficient treasury
management resulted in higher return on company deposits as well. As saving in finance cost
improved, net profitability despite increased gas cost and taxes, translating into net profit margin of
14% compared to 12% earned last year, which resulted in Return on Equity of 43%
DuPont Analysis (2017):
Current assets increased by 50% driven by increase in short-term investments and subsidy
receivable, increase in the total assets by 20% to Rs 108.63 Billion, which resultantly decreased the
ownership ratio to 27% and Return on Assets to 10%. Sales revenue increased by 24% on account of
highest ever all fertilizer offtake during 2017. Resultant net margin was 12% compared to 16%
earned last year, which resulted in Return on Equity to 37% in 2017.
Total assets increased by 13% due to higher short term investments at the end of the year and
subsidy receivable from Government, which consequently decreased the return on assets to 13%
and ownership ratio to 31%. Sales decreased by 16% due to reduction in urea selling prices under
the Government subsidy scheme, which coupled with higher finance costs due to financing availed in
2015 for payment of GIDC and to finance working capital requirements of the Company, and levy of
Super tax resulted in net margin of 16% compared to 20% earned in 2015.This resulted in 42% return
on equity compared to 61% earned in 2015