HALF YEARLY
REPORT | 2023
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COMPANY INFORMATION
DIRECTORS | COMPANY SECRETARY | ||||
Mr. Waqar Ahmed Malik | Brig. Khurram Shahzada, SI(M), (Retd) | ||||
Chairman | CHIEF FINANCIAL OFFICER | ||||
Mr. Arif-ur-Rehman | |||||
Mr. Muhammad Javed Akhtar | |||||
Chief Executive Officer | REGISTERED OFFICE | ||||
Mr. Sarfaraz Ahmed Rehman | |||||
FFBL Tower, C1 / C2, Sector B, Jinnah Boulevard, | |||||
Dr. Nadeem Inayat | |||||
Phase II, DHA Islamabad. | |||||
Mr. Qamar Haris Manzoor | Tel: +92 51 8763325, Fax: +92 51 8763304-05 | ||||
Syed Bakhtiyar Kazmi | E-mail: secretary@ffbl.com | ||||
PLANTSITE | |||||
Ms. Pouruchisty Sidhwa | |||||
Plot No. EZ/I/P-1 Eastern Zone, Port Qasim, Karachi 75020. | |||||
Ms. Saira Nasir | |||||
Tel: +92 21 34724500-29, Fax : +92 21 34750704 | |||||
Mr. Bahauddin Khan | Email: information@ffbl.com | ||||
WEB PRESENCE | |||||
www.ffbl.com | |||||
BANKERS | |||||
Habib Bank Limited | Samba Bank Limited | ||||
MCB Bank Limited | Zarai Taraqiati Bank Limited | ||||
United Bank Limited | Industrial & Commercial Bank of China | ||||
National Bank of Pakistan | The Bank of Khyber | ||||
Allied Bank Limited | Al-Baraka Bank (Pakistan) Limited | ||||
Askari Bank Limited | Dubai Islamic Bank Pakistan Limited | ||||
Faysal Bank Limited | Bank Islami Pakistan Limited | ||||
Standard Chartered Bank (Pakistan) Limited | Meezan Bank Limited | ||||
Habib Metropolitan Bank Limited | MCB Islamic Bank Limited | ||||
The First Micro Finance Bank Limited | Bank Al-Falah Limited | ||||
Soneri Bank Limited | Bank Al-Habib Limited | ||||
Summit Bank Limited | Silk Bank Limited | ||||
JS Bank Limited | The Bank of Punjab | ||||
LEGAL ADVISORS | AUDITORS | SHARES REGISTRAR | |||
Orr Dignam & Co, | EY Ford Rhodes, | Corplink (Pvt) Limited | |||
Advocates, Marina Heights, | Eagle Plaza, 75 West, | Wings Arcade, 1-K, | |||
2nd floor, 109 East, Jinnah Avenue, | Fazal-e-Haq Road, | Commercial, Model Town, Lahore. | |||
Blue Area, Islamabad. | Blue Area, Islamabad. | Tel: (042) 35839182, 35916719 | |||
Tel: (051) 2348645-9 | Fax: (042) 35869037 |
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Directors' Review
For the Half Year Ended June 30, 2023
Dear Shareholders,
We present the Director's Review Report on behalf of the Board of Directors of Fauji Fertilizer Bin Qasim Limited (FFBL) for the half-year ended June 30, 2023.
During this period, the Company has faced an unprecedented series of challenges that have significantly impacted our financial performance, resulting in a loss after tax of PKR 4.95 billion, compared to the profit after tax of PKR
3.41 billion recorded in the same period last year (SPLY). We would like to provide a comprehensive overview of the multiple factors that contributed to this adverse financial outcome.
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Rupee Devaluation and Payment Delays: The economic crisis in Pakistan led to a widening current account deficit, further straining the country's financial resources. In response to this challenge, the State Bank of Pakistan took the difficult decision to stop payments against foreign contracts in July 2022. As a consequence, payment to key suppliers, including PMP (OCP), Morocco, was delayed until Q1 2023 when the rupee had undergone significant devaluation from PKR 229 to PKR 270 against the US dollar.
It is necessary to point out that within the fertilizer sector, this drastic depreciation only directly impacted FFBL, since we are the only fertilizer company that relies on importing its primary raw material, Phosphoric acid - other urea manufacturers benefit from domestic gas as their main raw material. This Impact alone, because of the Rupee depreciation and delayed payment, in the reporting period is PKR 3.6 billion. - Impact of Inflation: The economic crisis also led to soaring inflation, reaching a staggering 38% year-on- year by June 30, 2023. The high inflation rate not only escalated our production costs but also reduced consumer purchasing power, leading to decreased demand for Diammonium Phosphate (DAP). Moreover, coupled with unfavorable exchange rates, it became challenging for us to pass on the entire cost burden to consumers. This imbalance between higher input costs and limited pricing flexibility significantly impacted our profit margins.
- Demand Reduction Due to Floods: In addition to the economic crisis, Pakistan faced widespread floods in 2022, which resulted in reduced agricultural activity and demand for fertilizers. The decrease in demand further exacerbated the challenges in the domestic DAP market and led to inventory build-up and increased debt levels.
- Escalating Interest Rates: The State Bank of Pakistan's decision to increase interest rates from average of 11.5% last year to average 20% this year, coupled with high debt levels, added further financial burden on the company, significantly increasing our interest expense and impacting profitability by PKR 3.7 billion as total financial charges reached at PKR 5.3 billion (SPLY: PKR 1.6 billion).
- Last but not least, a major challenge has been the discriminatory Government policies that directly affected our operations as the sole manufacturer of DAP in the country. The 'Government's policies, unfortunately, favored importers of finished DAP by exempting them from General Sales Tax (GST), while applying GST on the raw materials procured by FFBL for DAP production. This disparity put the Company at a significant disadvantage, leading to an additional burden of PKR 2.5 billion on our production cost during the current six months period. The discriminatory tax treatment not only affected our cost structure but also impacted our competitiveness in the market.
- In addition to the GST issue, the Government's decision to impose/increase super tax on the profit of 2022 further exacerbated the financial strain on the Company, resulting in an additional burden of PKR 839 million during the half-year.
- The combination of discriminatory tax policies, super tax, and the prevailing economic challenges, including high inflation and currency devaluation, collectively led to the reported loss for the first half of 2023.
We would like to point out to our shareholders that if we only eliminate the impact of exchange loss on delayed payments to OCP; discriminatory GST policy of GOP Jan - June 2023 and impact of higher interest cost, your company would have made a profit of PKR 5 billion, higher than last year.
PLANT OPERATIONS
The Company received 6,489 MMSCF feed gas supplies during the period in comparison to 9,726 MMSCF feed
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gas supplies in SPLY, representing 33% gas curtailments. Moreover, DAP plant was also shut down for additional 33 days during the period for better inventory management.
Consequently, DAP production during the period decreased by 47% to 236 KT (SPLY: 449 KT) and Urea
production decreased by 30% to 183 KT (SPLY: 262 KT).
At the close of current period, the Company has successfully achieved 24.8 Million safe-man-hours in line with our commitment towards health and safety of our people.
MARKET PERFORMANCE
The domestic DAP market is estimated to have declined by 14% to 476 KT during the period (SPLY: 555 KT).
Whereas the Company's sales dropped by 12% to 274 KT (SPLY: 311 KT). As a result, the Company's market
share strengthened to 58% (SPLY: 56%).
The domestic Urea market is also estimated to have declined by 4% to 3,101 KT during the period (SPLY: 3,246 KT). Whereas the Company's sales dropped by 31% to 180 KT (SPLY: 262 KT) primarily due to decline in production owing to gas curtailments.
SUBSIDIARIES PERFORMANCE
For the first time ever since its acquisition in 2015, Fauji Foods Limited (FFL) has delivered profits by achieving profit after tax of PKR 22 Million for the Q2 2023. During the half year ended 30 June 2023, FFL achieved 109% growth in revenue to PKR 9.8 Billion (SPLY: PKR 4.8 Billion) and its gross profit margin improved to 12.5% (SPLY: 3.7%). This is backed by improving business fundamentals including route to market strategy, strengthening brand value and focus on sales to institutional businesses.
Going forward, as FFL's legacy debts are paid off, its performance is expected to improve on the backdrop of cost optimization, product and brand enhancement and distribution channel improvements.
The operations of FFBL Power Company Limited (FPCL) remained safe and profitable. In May 2023, the power plant encountered a technical malfunction, and as of the reporting date, power supply to the Company's plant has not yet been restored as remedial measures are still in progress. Nevertheless, FPCL has been consistently supplying power to K-Electric and steam to the Company. The Company is currently utilizing its own gas turbines to meet its power requirement.
Fauji Meat Limited (FML) has reported PKR 95 Million loss after tax for the period (SPLY: PKR 412 Million). The Company has received an offer form Fauji Foundation for purchase of 100% of shares owned by the Company in FML for consideration of PKR 4.3 Billion. The Board of Directors of the Company has recommended the transaction for approval to majority shareholders of the Company.
OUTLOOK
Dear Shareholders, while we have already outlined the various factors contributing to this loss, we must also acknowledge a concerning aspect that has been impacting our company-the lack of understanding by the Government regarding the importance of DAP for increasing crop yields.
DAP is a critical fertilizer that plays a pivotal role in enhancing agricultural productivity and ensuring food security for our nation. As the sole manufacturer of DAP in the country, FFBL holds a strategic position in fulfilling the demand for this essential agricultural input. Unfortunately, the government's failure to comprehend the importance of DAP in increasing crop yields has resulted in policy decisions that do not promote balanced use of fertilizers. The repercussions of these decisions have been felt not only by our company but by farmers across the country, as they face challenges in accessing quality and affordable fertilizers that are crucial for improving agricultural output.
We have actively engaged with relevant authorities to highlight the vital role of DAP in enhancing agricultural productivity. We continue to advocate for supportive policies that recognize the significance of DAP and provide an environment conducive to the sustainable development of the sector- such as, but not limited to subsidy to farmers to promote consumption of DAP. This is perhaps critical to the objective of the Green Pakistan Initiative (GPI).
We would like to point out that over the last 5 years the payments to GOP on account of taxes and levies and
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Fauji Fertilizer Bin Qasim Ltd. published this content on 25 August 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 25 August 2023 07:57:01 UTC.