Corporate results finale: Corporate world protects profits, passes on price hikes

Mediocre performances amid stagnant production levels leave companies with no other choice but to increase prices.


Our Correspondent March 25, 2012

KARACHI: Cement industry uses the magic wand

The cement industry used the magic wand to double its profits in 2011 as cement output remained at the same level.

All-time high local cement prices and gradual improvement in export prices turned profits around, according to a BMA Capital research note. Cement demand from Afghanistan and India continued riding upwards while demand from other routes remained sluggish.

This improvement seems commendable for the fact that total cement dispatches during the period improved by meagre 4%.

A Major reason behind 32% growth in net sales is higher cement retention prices which grew from an average of Rs228 per bag last year to approximately Rs315 per bag.

PTCL profits fall 29% amid shift in business strategy

The only major listed telecom firm on the stock exchange is Pakistan Telecommunication Company Limited. The giant’s profits fell 29% to Rs2.86 billion in the first half of fiscal 2012 amid a shift in business strategy.

Keeping in mind the falling demand for land line communication, the company has made itself the leader in DSL broadband and a competitive player in multimedia services through its Smart TV device.

The first half was a landmark as revenues of the wireless segment, mostly Ufone, surged 7% to Rs30 billion and overtook revenues of wireline segment that stood at Rs25 billion, according to AKD Securities. Encouragingly, the company’s top-line grew by 6% to Rs29.34 billion on a yearly basis.

 Exploration companies perform lower than expectation

The exploration and production sector surprised the industry as profits fell short of market expectation by, on average, 8% to 18% but still pulled out a strong performance as production remained stagnant.

During the first half of fiscal 2012, the listed explorer sector posted an earnings growth of 28% to Rs69 billion on the back of better pricing scenario along with higher other income.

On the volume front, listed sector oil production remained stagnant and hovered around 48,000 barrels of oil per day, while gas production increased by 2% to 2.1 billion cubic feet per day.

Amongst individual companies, the country’s largest explorer Oil and Gas Development Company led the way with a growth of 32%, while other explorers posted a respectable growth of 17 to 21%.

Benefiting from higher oil and gas prices, the sector’s revenue grew by 14.4% to Rs152.3 billion in the first half of fiscal 2012 against Rs133.1 billion in the corresponding period last year. Pakistan relevant, Arab Light crude oil prices, average around $108 per barrel, up 36% from $79 per barrel in the same period a year ago.

Sector’s other income depicted a phenomenal growth of 138.8% to Rs10.1 billion, doubling its contribution to gross profits.

Fertiliser sector rides on higher profits

The industry resorted to constant price increases to keep profits on the upside as production levels remained the same amid severe gas shortage.

Net profit registered an enormous growth of 99% to Rs46.25 billion in 2011 against profit of Rs23.26 billion in 2010.

Urea plants on the Sui Northern Gas Pipelines network – Engro Enven, Dawood Hercules Fertilizers, Pak-Arab Fertilizer and Agritech – would want to forget the year as they operated at only 19% of their capacity in the last three months of the year. Engro’s new urea plant EnVen after starting operations in July operated at only 40% of effective capacity while Dawood Hercules had its supply curtailed by over 50% during the year.

In the fourth quarter alone, urea – the most widely used fertiliser – sales came down 13% to 1.68 million tons on a yearly basis and DAP – the second most common fertiliser – sales were down 25% to 0.4 million tons.

In response, industry players kept on raising prices to protect margins. Urea and DAP prices were up 47% and 44%, respectively, by the end of the year and played the most integral part in the industry’s profits.

As far as sales performance of the players is concerned, Engro Fertilizer showed the highest growth of 65% to Rs31.35 billion.

Consumer goods grow 25%, Engro Foods makes its mark in 2011

Despite all odds, the consumer goods industry showed a strong growth of 25% in terms of profits in 2011.

Product prices were substantially up by around 20% on average in the industry to protect profit margins from double-digit inflation and higher input costs.

Sectors profitability was well-supported by the two conventional giants, Nestle and Unilever Pakistan, who shared 38% and 33%, respectively, and a combined 71% profitability of the industry in 2011.

Exceptionally, Engro Foods emerged as the supercharged fast moving consumer goods company, with a growth of more than 400%, to grab fourth position after Nestle, Unilever and Rafhan, outdoing Unilever Foods and National Foods. Engro’s contribution to the overall sector’s profitability took a quantum leap of 6% to 7% from a meagre 1% in 2010.

Despite massive growth in profitability, escalating financial cost of Nestle – up 105% to Rs1.1 billion – and Engro Foods – up 59% to Rs1.04 billion – restricted sector’s bottom-line expansion to a great extent. The industry’s profits would have expanded to 35% had financial charges been at normal levels.

Nestle’s net profit stood at Rs4.67 billion (up 14% ), while Unilever Pakistan posted Rs4.1 billion (up 25%).

Banking sector sticks to the basics

The banking sector kept to the basics of increasing interest rates while keeping bad loans in check. It proved to be the right formula once again as the top four private banks – Habib Bank (HBL), United Bank (UBL), MCB Bank and Allied Bank (ABL) profits rose  27% to Rs66 billion in 2011.

The Karachi Interbank Offered Rate (Kibor) – the benchmark interest rate in the Pakistani financial sector – was higher by an average of 60 basis points in 2011 compared to 2010.

The only change in basics is that dealings with the government, in terms of borrowing, have increased and the private sector is being squeezed out. Allied Bank’s investment portfolio is skewed 70% towards government securities. The four banks hold more than 50% share of the listed private banks’ deposits and represent approximately 60% of the total branch network.

Cumulative earnings of these 4 banks reached Rs66bn in 2011, up 27% from 2010. Amongst listed private banks, these 4 banks contribute 70% of the market capitalisation. Bank-wise profitability shows that UBL posted highest profitability growth of 39%, followed by HBL’s 33%, ABL’s 23% and MCB Bank’s 15%. Thanks to higher return on advances and better yield on government papers, overall net interest income – the core revenue maker for the industry – of these 4 big banks grew by 17%.

Published in The Express Tribune, March 26th, 2012.

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