Corporate results: Higher financial income leads Fauji Fertilizer to growth in profits

Investors surprised with higher cash payout; stock rises.

KARACHI: Fauji Fertilizer Company (FFC) announced its financial results for the nine month period ending September 30 2013, posting an after-tax profit of Rs14.8billion, up 8% from Rs13.7 billion last year, resulting in total earnings per share of Rs11.71 for the nine month period compared with Rs10.84 last year.

The company announced a cash dividend of Rs4.1 per share for the last quarter, bringing the total payout for the nine month period to Rs11.35.

Net sales for the nine month period were at Rs52.5 billion, up 5% from Rs50 billion last year. Sales were pushed along by an 11% increase in urea offtakes to 1.79 million tonnes year on year for the nine month period, and a 8% year on year increase in urea prices, despite a 2% drop in offtakes on a quarter on quarter basis, according to Global Securities Pakistan.

Urea demand for the nine month period remained upbeat on expectations of higher prices post gas-price rationalisation which also kept prices up.

The company also witnessed a 28% fall in finance cost down to Rs584 million for the nine month period, from Rs816 million in the previous year.

Other income for the company increased by 21% from Rs2.8 billion last year to Rs3.4 billion this year, mainly due to dividend payout from its subsidiaries. FFC received dividend payments from Fauji Fertilizer Bin Qasim Limited (FFBL) and Fauji Cement Company Limited (FCCL), two subsidiaries of the Fauji group, in the last quarter. FFBL has also announced a dividend payout this quarter. However, FCCL has not announced any dividend, which will show in FFC’s financial results for the fourth quarter.

The company’s results were mostly in line with investors expectations, with little to surprise anyone aside from the higher dividend payout. The biggest source of concern for the company at the moment is the impending gas price rationalisation which will invariably push costs and retail prices up. However the fertiliser industry as a whole is limited in its ability to pass on price to consumers, as it has to sell below the international price.

Coupled with gas shortages, investors have been expecting price hikes for quite a while, which has resulted in growth offtakes as buyers stock up on fertiliser at the current price. To be able to maintain profit rates, the fertiliser industry has been urged to improve efficiencies, which may be linked to gas allocation in the future.

Published in The Express Tribune, October 31^st, 2013.

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